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EXPRESSIONS OF OPINION IN REGARD TO THE FIRST EDITION 
OF "THE INTRODUCTION TO POLITICAL ECONOMY." ' 



" I am glad that the old ' Introduction ' is not going out of print, as I never 
saw a work that would secure the interested attention of the average person 
in the subject of political economy as surely as that."— The late Amos C. 
Warner, Ph.D., Professor of Economics and Social Science in the Leland Stanford, 
Jr., University. 

" We are using With great satisfaction your Introduction to Political Econ- 
omy. 1 ''' — Charles J. Bullock, Teacher of Political Economy in Hitchcock Free High 
School, Brimfkld, Mass. (now in Williams College). 

" It gives me pleasure to state that I like the book better on the whole than 
any I have used in my twenty years of experience as a teacher of political 
economy. I like it better because it recognizes vital questions of the day 
and does not ignore the dynamics of the science. . . . lean testify that no 
other branch of study ever awakens such a general and thorough interest 
among girls." — Miss Jane M. Slocum, Vice President of the Granger Place School 
(for young ladies), Canandaigua, If. T. (now of the'Idaho Industrial. Institute). 

" Your work is by far the best introduction to economic science which I 
have read. I am particularly pleased with the emphasis, of the sociological 
and ethical aspects of the subject. Of course, a science may be built upon 
abstractions, provided we remember that they are abstractions. Our tradi- 
tional potitical economy has been built upon abstractions, but, unfortu- 
nately, has forgotten that they are abstractions. In this way a purely fictitious 
economic man, driven purely by selfishness, has been invented, and we have 
been summoned to pattern our lives after him. To decline to do so was to 
fly in the face of science."— Professor Borden P. Bowne, of Boston University. 

" Our students are much interested in your book on political economy, 
which, I find, is making a marked impression. Go on with the good work. 
I am glad that the constructive era in this field has begun."— Professor Ed- 
mund J. James, of the Wharton School of Political Science, University of Pennsyl- 
vania (now of the University of Chicago). 

■ 

"It is, I think, the best elementary economic treatise that I have read. 
How clear and simple it is ! " — Emile de Laveleye, Professor of Political Economy, 
University of Liege, Belgium. 



" In my judgment the book is a pronounced success, and I even think it 
will mark an era in text-book making. The sociological standpoint and the 
historical method, also generally the human spirit in it, sharply distinguish 
it from text-books now in the hands of elementary students."— J. B. Clark, 
Professor of History and Political Science in Smith College, Northampton, Mass. 
(now of Columbia University). 

" It shows, as no other book ever has shown, what the scope of economic 
study is. The entire field is mapped out, and the survey is from the right 
standpoint, the sociological." — F. H. Oiddings, Professor of Political Economy, 
Bryn Mawr College (now of Columbia University). 

" We are using Ely's Political Economy, and find that it is doing just what 
the author intended it should do, namely, awaken the mind to a full compre- 
hension of the subject and stimulate it to further inquiry. It does more. It 
puts the subject in a new and attractive light. I regard it as a great success." 
— F. W. Blackmar, Professor of Political Science, University of Kansas, Lawrence, 
Kan. 

" I have looked through it, and I wish to say that no other text-book on 
the subject pleases me quite so well. It is sufficient to prove that this sub- 
ject need not be a dry one, as is so often claimed." — George P. Garrison, Pro- 
fessor of Histwy and Political Science, University of Texas, Austin, Tex. 

" It contains admirable features, and I shall recommend it to our stu- 
dents." — Edward G. Bourne, Professor of Political Science, Adelbert College, Cleve- 
land, 0. (now of Yale University). 

" I have used in college classes and have watched the use by one of my 
associates of Professor Ely's Introduction to Political Economy. The work not 
only enables, but almost compels, the instructor using it to fulfill the author's 
design of revealing to the students the genuineness and timeliness of the ques- 
tions which political economy confronts, and it points out the only scientific 
method of investigating those problems. I ^an do better work with this vol- 
ume than with any other which has yet appeared. ''"'—Albion W. Small, Presi- 
dent of Colby University (now of the University of Chicago). 



AN INTRODUCTION 



TO 



POLITICAL ECONOMY 



BY 

RICHARD T. ELY, Ph.D., LL.D. 

Professor of Political Economy and Director of the School of Economics 
and Political Science in the University of Wisconsin 



NEW AND REVISED EDITION 



Thirty-fits* Ttovsand- ' 



NEW YORK : EATON & MAINS 

CINCINNATI : JENNINGS & PYE 

1901 



THE LIBRARY OF 

CONGRESS, 
Two Copita Receiveo 

JUL 17 1901 

Copyright entry 

I j?LASS 0^ XXC N». 

COPY B. 



4 



Copyright, 1889, by Hunt & Eaton 
New York 



Copyright, 1901, by Eaton & Mains 
New York 



PREFACE 



In offering to the reader this revision of the Introduction, 
to Political Economy, it seems advisable to explain some of 
the circumstances which have called it forth, and which have 
consequently determined its character. In particular is it 
important to explain its relation to the author's Outlines of 
Economics, in order to avoid confusion and possible incon- 
venience. 

The "Introduction" was first published in 1889, and has 
since then without change passed through many editions. The 
"Outlines," which appeared in 1893, was originally intended 
to be simply a revised edition of the "Introduction," but 
finally grew into something quite different. It was therefore 
decided not to withdraw the earlier work, and in the preface 
to the "Outlines" it was stated that "in any future revisions 
of the two books an effort will be made to develop still further 
the peculiarities of each; the aim of the 'Introduction' being 
to furnish chiefly historical and descriptive material; the 
aim of the 'Outlines' being to give a systematic sketch of the- 
ory." Since the appearance of the "Outlines" the author has 
been gratified to learn from many sources that his course at 
that time has met with approval ; and in this revision he seeks 
to carry out the intention to which reference has just been 
made. It has not been attempted, however, to make the re- 
vision in any way a new book, but rather to keep it essentially 
the same book while developing it in the direction indicated. 
The chief purpose of the revision has been to remove obvious 
defects, to bring statistical statements down to date, and to 
change theoretical expositions, so far as the advance of 
economic thought clearly requires that this should be done. 
On the other hand, it is altogether foreign to the purpose of 
this work to enter into theoretical controversies. 

Another consideration should be mentioned in this con- 



vi Preface 

nection. The book has been used by various organizations. 
Eight years ago the Bishops of the Methodist Episcopal 
Church adopted it as a part of the preachers' reading course, 
which they had laid out for candidates for the ministry in 
their Church. They have this year asked that the book be 
revised, but with the understanding that after revision it must 
be essentially the same book. The author has felt the re- 
sponsibility thus imposed upon him as keenly as he has 
realized the compliment paid him by this distinguished body. 

The spirit and purpose of this book are then sufficiently 
apparent. It aims to present what the intelligent citizen 
ought to know in regard to political economy, and to do so 
with scientific accuracy. On the other hand, it does not aim 
to be a contribution to the knowledge of the specialist, and 
there has been no attempt to give exhaustive classifications 
and sub-classifications. Moreover, the present book aims to 
help those who wish practical guidance in the solution of the 
puzzling economic questions which come to them in the va- 
rious relations of life, and, therefore, gives special attention 
to the ethical side of political economy. After all, what the 
so-called "plain man" wishes chiefly to know is what is right 
and wrong in those problems which confront him as he seeks 
to gain his daily bread. 

It has seemed to the author that one difficulty with many 
economic treatises is that they have no one clear aim, that 
they are, so to speak, "straddles." This difficulty he is seeking 
to avoid, and consequently he has had only one class in mind 
in this revision. It is first of all the general reader for whom 
the book is designed, and it is the general reader whose needs 
have been kept constantly in view. For him it primarily exists, 
and to his requirements have been entirely subordinated all 
considerations based on its possible use as a text-book. 

It only remains to make acknowledgment of the very effi- 
cient assistance which the author has received in this revi- 
sion from his friend, Dr. George Eay Wicker, of Dartmouth 
College. Kichard T. Ely. 

Madison, Wis., March, 1901. 



CONTENTS 



]Part I 

THE GROWTH AND CHARACTERISTICS OF INDUSTRIAL 
SOCIETY, AND THE NATURE OF POLITICAL ECONOMY 

PAGE 
CHAPTER I 

Preliminary Remarks on Political Economy as a Social 
Science 1 

chapter ii 
The Economic Life of Man 7 

CHAPTER III 

The Two Great Factors in a National Economy 17 

chapter iv 
Evolution of Economic Civilization 23 

chapter v 

Economic Progress Viewed from the Standpoint of Pro- 
duction AND FROM THE STANDPOINT OF TRANSFERS 29 

chapter vi 

The Present Status of Economic Society and of Economic 
Problems 42 

chapter vii 

Some General Features of the Economy of the Modern 

Nation 61 

vii 



viii Contents 

PAGE 
CHAPTER VIII 

The Nature and Scope of Political Economy 85 

CHAPTER IX 

Methods in Political Economy 102 

CHAPTER X 

Laws in Political Economy 109 

CHAPTER XI 

A Few Remarks on the Utility op Political Economy, 
with some General Considerations on the Relation 
of Political Economy to Other Sciences 114 



Fart II 

PRODUCTION 

chapter i 

Introductory 129 

CHAPTER II 

Motives of Economic Activity 139 

CHAPTER III 

The Factors of Production. 144 

CHAPTER IV 

Organization of the Productive Factors 153 



F>art III 

TRANSFERS OF GOODS 

chapter i 

Introductory 165 



Contents ix 

PAGE 

chapter ii 

Money 177 

chapter iii 

Credit and the Instruments op Credit : Banks and 
Clearing Houses 194 

chapter iv 
The Regulation op International Commerce 201 



F>art IV 

DISTRIBUTION 

CHAPTER I 

Introductory 211 

CHAPTER II 

Rent 214 

CHAPTER III 

Interest 218 

chapter iv 
Profits 221 

chapter v 

Wages and the Wages System 227 

CHAPTER VI 

Labor Organizations 236 

chapter vii 
Profit-Sharing and Cooperation 243 

CHAPTER VIII 

Socialism , 248 



x Contents 

PAGE 
CHAPTER IX 

Monopolies 257 

CHAPTER X 

Additional Remarks on Social Problems and Remedies 
for Social Evils 270 



F>art V 

CONSUMPTION 277 

Part VI 
PUBLIC FINANCE 

chapter i 
Introductory .,. 297 

CHAPTER II 

Taxation , 310 

F>art VII 

THE EVOLUTION OF ECONOMIC SCIENCE 

CHAPTER I 

Introductory 325 

CHAPTER II 

Economic Ideas in the Ancient World and in the Middle 
Ages 328 

chapter hi 
Economic Ideas in Modern Times 334 

Appendix: 

1. Suggestions as to Study and Courses of Reading in Polit- 

ical Economy 349 

2. Questions and Exercises 358 

3. Bibliography 366 

Index. 378 



PARTI 

THE GROWTH AND CHARACTERISTICS OF IN- 

DUSTRIAL SOCIETY, AND THE NATURE 

OF POLITICAL ECONOMY 



CHAPTER I 

PRELIMINARY REMARKS ON POLITICAL ECONOMY AS A SOCIAL 

SCIENCE 

Some writers have been inclined to discard formal defini- 
tions of sciences as unprofitable. True, an entire scientific 
treatise is nothing but an expanded definition. A text-book 
of physiology, for instance, is nothing but an answer to the 
question, What is physiology ? The present work is a similar 
endeavor to answer the question, What is political economy? 
But while conscious of the imperfections of definitions, par- 
ticularly when placed at the beginning of a treatise, the au- 
thor believes that the student will find it an advantage to 
have described to him in advance, in rough outlines at least, 
the field which he is about to investigate more minutely. At 
the outset of our studies, therefore, we shall attempt to frame 
some kind of an idea of political economy, and of that group 
of sciences of which it is one, returning later to a more de- 
tailed description of the nature of our particular science. 

The Place of Political Economy among the Social Sciences. 
— Political economy is a social science, but it does not exhaust 
the whole field of the social sciences. On the contrary, several 
others find a place in that field, among them, political science 
and sociology. 

The domain of political science is rather clearly defined and 
generally acknowledged as that part of social life which man- 
ifests itself in state organization. When states, in the course 
of evolution, come into being, those within the jurisdiction of 
the states have a special relation one to another. The study of 
this relation, of its nature, its origin, its purpose, its power, 
and its scope, constitutes the task of the political scientist. 

The field of work of sociology is neither so well defined nor 
so generally acknowledged. Three, possibly four, fairly dis- 



2 An Introduction to Political Economy 

tinct notions regarding the province of the science prevail. 
The older idea, that sociology is the science of all the infinite- 
ly numerous and infinitely complicated phenomena of human 
association, is still accepted in many quarters as exact and 
sufficient. Among others who discuss sociology with this con- 
ception in their thought are Comte, Herbert Spencer, and 
Lester F. Ward.* 

In more recent days this view of the subject has been vig- 
orously opposed, chiefly on the ground that such a science as 
would be contemplated under the above concept would be im- 
possible because of its very vastness and complexity, and be- 
cause the domain as thus roundly outlined has been occupied 
already, in many of its parts, by other fruitful and legitimate 
sciences. It has been contended that political science has a 
sharply defined field, and that in that field it should be left 
to itself, offering nothing but results to other sciences which 
may need such data. Political economy, it has been urged, 
has also a distinct field of operation, and its territory should 
not be seized upon by another science, the very magnitude of 
which would necessarily condemn it to barrenness. 

These opponents have therefore sought to find for the sci- 
ence a field which should be less ambitious and more fertile. 
Thus, Professor Franklin H. Giddings, in his Principles of 
Sociology, maintains that "while sociology in the broadest 
sense of the word is coextensive with the entire field of the 
special social sciences, in a narrow sense, and for purposes of 
university study and of general exposition, it may be defined 
as the science of social elements and first principles." These 
social elements and first principles are simply the common 
basis — the postulates — of the special social sciences. "Not con- 

* Professor Ward would, it is true, have the sociologist refrain from enter- 
ing any one of the minor fields, like economics, which is being cultivated by 
a special class of investigators. In his own words : " While economics be- 
longs within the great field of sociology, there should be no confusion or 
overlapping in speaking of these sciences or in teaching them, so that noth- 
ing that clearly belongs to economics should he treated as sociology."— See 
Ward's Outlines of Sociology ■, page 15. 



Preliminary Remarks 3 

cerned," he says, "with every aspect and grouping of social 
phenomena, fundamental sociology is intermediate between 
the organic sciences on the one hand, and the political and 
historical sciences on the other hand." In another place he 
illustrates his view by the position of biology among the nat- 
ural sciences. At one time the word biology was commonly 
used as a general term to cover all the field of the sciences 
which deal with organic life, and a survival of this view is still 
indicated in the catalogues of some colleges. But to-day the 
word is more commonly used in a narrower sense to connote 
the universal and essential phenomena of life — cellular struc- 
ture, nutrition and waste, growth and reproduction, adaptation 
and environment, and natural selection — phenomena which 
are common to all plant and animal life, and the science of 
which is therefore basal and general. Sociology, in the view 
of Professor Giddings, stands to the social sciences in precisely 
the same position as does biology to the organic sciences. 

By another group of sociologists, prominent among whom 
is Professor Albion W. Small, of the University of Chicago, 
the subject is conceived in a manner somewhat similar to that 
of Spencer and Ward. The difference seems to be that while 
the latter make sociology all inclusive, the former claim only 
that it is a science constructed from the data gleaned from the 
special social sciences, these data being grouped to give & 
comprehensive science of social life in all its aspects. As will 
be noticed, this position is antithetical to that of Professor 
Giddings. The science, according to the one view, gets its 
data from the special social sciences, while according to the 
other view, that of Professor Giddings, it supplies their data to 
them. 

Still another view of the subject is that it occupies a place 
neither more general nor more special than that of the other 
social sciences, but is coordinate with them. Just as human 
want is the nucleus of economic thought, ancPalT organized 
social activity under an ultimate and powerful sanction forms 
the center about which gathers the material of political sci- 
ence, so, according to this last view of the science, the "social 



4 An Introduction to Political Economy 

imperative" furnishes a distinct kernel for a separate sci- 
ence to be known as sociology. The social imperative is the 
impelling power which drives men into those forms of asso- 
ciation that exist within the association called the state, but 
which are essentially independent of it. It is the princi- 
ple which brings men together and regulates their action in 
such associations as the church, the party, and even in the 
less rigid association of their everyday intercourse with one 
another. 

To sum up these various views of the province of sociology 
by means of a familiar analogy, we may say that one regards 
the science as in reality nothing but the perfected family of 
the social sciences; that another makes sociology the mother 
of the family, which includes among its children economics 
and politics; that a third represents the subject as the whole 
family, not indeed in the sum of the individual activities of its 
members, but only in their combined or concerted activity; 
and that, according to a fourth view, the science is a sister 
in the family of social sciences — a sister of economics and 
politics. Were we to press the matter still further, we would 
find in this last case that there are differences of opinion as 
to the rank of the sister in the family, some claiming for her 
the chief honors and dignity, while others would reduce her 
to the position of a neglected Cinderella, who must content 
herself as best she may with whatever her more ambitious and 
honored sisters do not deign to use. Even beyond all these 
we have yet another view, maintained by the regular occu- 
pant of a chair in sociology in an American university, that 
the science does not and cannot exist at all except as an ab- 
straction. He holds that in the large use of the term sociology, 
it is nothing more than what has long been studied under the 
name of philosophy of history, and that, on the other hand, 
there is no minor or special field already unoccupied in which 
a new science of sociology can be established. No longer al- 
lowed membership in the family, she becomes but a wraith 
and a name. 

What view of the science will ultimately prevail it is need- 



Preliminary Remarks 5 

less for us to inquire. Enough has been said to illustrate the 
position of political economy in the general field of the social 
sciences, and that is all that concerns us in this place. 

Society is Organic. — The fact of the necessary relationship 
of human beings to one another is brought out in a thousand 
ways in the language of everyday conversation. Indeed, even 
when we say "human beings" we separate men from other 
beings, and imply a common tie in humanity. This idea is 
brought out still more clearly when we speak of others as our 
fellows. Without dwelling upon words which imply this in- 
tuitive feeling in various grades of intensity, we may simply 
remark that Christianity offers us our highest conception of 
a society which embraces all men, and in that conception sets 
us a goal toward which we must ever move. The fatherhood 
of God and the brotherhood of man are the expressions of 
this relationship. Human progress can never pass that goal, 
for it satisfies the highest aspirations of which we are capable. 

As a first step in the study of sociology, as well as in the 
study of political economy, it must be clearly understood that 
society is organic ; that is to say, it is like an organism in that 
it is composed of interdependent parts performing functions 
essential to the life of the whole. Society expresses a will in 
various ways, particularly, but not solely, through govern- 
ment, and it finds methods for the execution of its purposes. 
Society punishes those who offend it and violate its well- 
known desires, the punishment assuming almost infinitely 
varying degrees of severity, including even torture, disgrace, 
and death. Many writers, past and present, have held not 
only that society is organic, but that it is really an organism. 
Without entering into details, we may simply say that this 
view is sharply combated to-day by many careful and eminent 
writers, on the ground that society differs in so many partic- 
ulars from those organisms to which the name was earlier 
applied that to make the term cover society clouds, rather 
than clarifies, thought. In any case, it is in great measure a 
matter of definition. Whether we use the word organism in 
defining society or refuse that name to it, we must bear in 
2 



6 An Introduction to Political Economy 

mind at least one important difference. Human society con- 
sists of parts which are themselves organisms, and each of 
which has a destiny and a purpose of its own. Society is 
composed of individuals, but individuals find their true life in 
society. 

The Departments of Social Life. — The life of society, or of 
a people organized as a politically independent society, may be 
conveniently divided into eight parts, which we may denomi- 
nate departments of social life, or life-spheres. They are lan- 
guage, art, science and education, the family life, social life in 
the narrower sense — that is, the intercourse of friends and as- 
sociates — religious life, political life, economic life. The ex- 
pression economic life means, briefly, that part of man's life 
which is concerned with what is commonly called "getting a 
living/' Now it is with this eighth great fundamental life 
territory of a people that political economy has to do, and we 
must examine its character. 

Relation of the Economic to Other Life-Spheres. — But the 
reader must first be warned that the scope of our science is 
neither small nor insignificant because we have excluded so 
much, and more especially because we have excluded the 
higher life-spheres of society. Our department touches all 
others, modifies and conditions all others, and ought to sub- 
serve all others; and in studying it we are examining those 
things which are fundamental, those things which serve as an 
indispensable basis for the highest flights of the soul in art, 
music, and religion. There is scarcely a phenomenon of so- 
ciety — perhaps none at all — which does not come sooner or 
later within the range of the economist's discussion, although 
he arrives at all from his own peculiar starting-point. 

Political Economy the Best Introduction to Sociology. — As 
has already been pointed out, the nature and scope of sociology 
are a matter of controversy among the sociologists themselves. 
The unsettled condition of ideas regarding that science is 
to-day preventing united work and rapid progress. As one 
great expositor of the subject says : "The science, in one sense, 
does not yet exist. It is rather to-day a science in the mak- 



Preliminary Remarks 7 

ing." Political economy, on the other hand, is a science which 
is making rapid progress at the present time, and men in all 
civilized lands, particularly in Italy, Germany, Austria, Eng- 
land, and the United States, are devoting themselves to its 
advancement with an ardor which is justified by the results 
already achieved. While it is recognized that political econ- 
omy has not long left behind the period of infancy, and that 
a great deal of what passes under that name is crude and 
imperfect, it is safe to say that it is to-day in a most hopeful 
condition, and that at the present time political economy 
serves as the best introduction to the study of the various 
special social sciences, as well as to a study of the vast prob- 
lem of coordinating the phenomena of society in all its various 
and varying aspects. 



literature.— Herbert Spencer, The Study of Sociology, 
Principles of Sociology, and Social Statics; Auguste Comte, 
System of Positive Philosophy, translated by Martineau ; Les- 
ter F. Ward, Dynamic Sociology, The Psychic Factors of Civ- 
ilization, and Outlines of Sociology; Albion W. Small and 
George E. Vincent, An Introduction to the Study of Society; 
Franklin H. Giddings, The Principles of Sociology; Benjamin 
Kidd, Social Evolution; Arthur Fairbanks, Introduction to 
Sociology. 



An Introduction to Political Economy 



CHAPTER II 

THE ECONOMIC LIFE OP MAN" 

Isolated and Social Economic Life. — A few elementary 
facts will serve to explain what is meant by the term econo- 
mic life. The wants of man are almost infinite in number 
and diversity. Many of them are such as must be satisfied 
in order that he may live at all; many others are such 
that they must be satisfied if he would live worthily; while 
still others are of such a nature that their gratification min- 
isters to vanity or to other evil traits of character. Some can 
be satisfied by material things, others only by immaterial 
goods or services. Wanting these things, man seeks to ac- 
quire them. The struggle is a constant and necessary one, 
and it is this struggle to acquire the means of satisfying his 
wants, in so far as they are usually measured in terms of 
money, that we call economic activity. That part of man's 
life which is devoted to the struggle we call his economic life. 

This struggle may be carried on in isolation or in society. 
We know, however, that in civilized communities, the economic 
life of man, however selfish and nonsocial may be its aim, 
must in its means be very largely social. Even that man who 
seems to be most isolated in his economic life will be found 
on investigation to touch the economic life of others at a 
thousand points. Indeed, it is only in the earliest stages of 
human development that man can be said to lead an isolated 
economic life. Even then it is perhaps never strictly isolated, 
for neither in history nor in the accounts of modern travelers 
and explorers do we find human beings living wholly in and 
for themselves. The savages of Terra del Fuego come near to 
answering to such a description. Moreover, knowledge of the 
lower animals would lead us to the opinion that perfect isola- 






The Economic Life of Man 9 

tion of economic life never exists among men. Even the 
beasts of the field are not altogether isolated from one another 
in their efforts to obtain food or in their consumption of it. 

In the Odyssey of Homer, that poet paints the isolated life 
of barbarians in a passage which describes the Cyclops. We 
quote from the excellent translation of Mr. Bryant: 
"No laws have they ; they hold 
No councils. Od the mountain heights they dwell 
In vaulted caves, where each one rules his wives 
And children as he pleases ; none give heed 
To what the others do." * 

It has been said that the wild men of Australia never co- 
operate with one another in their economic efforts, and the 
individualism of the blacks of "the heart of Africa" has 
been described by Professor Drummond, in his work, Trop- 
ical Africa, to be such that in some districts three natives 
cannot be sent with a message, for in that case two of them 
would combine and sell the third before they return. Sir 
John Lubbock uses these words of savages in general: "The 
savage is always suspicious, always in danger, always on the 
watch. He can depend on no one, and no one can depend on 
him. He expects nothing from his neighbor, and does unto 
others as he thinks they would do unto him. Thus his life is 
one prolonged scene of selfishness and fear/'f 

But while we nowhere find instances of individuals living 
in perfect isolation, we do find such isolation among very 
primitive peoples in the case of families or households. Eco- 
nomic activity begins and ends with the family. Products are 
taken from the hand of nature and are used directly or in 
only slightly changed form to satisfy the wants of the mem- 
bers of the economic unit. Probably even here, while isola- 
tion is the rule, families occasionally exchanged with one an- 
other and thus unconsciously laid the foundations of a social 
economic life. Yet the progress was so slow that after all the 
centuries relative isolation still marks the economic life of 
man over large parts of the earth's surface. 

* The Odyssey, Bk. ix, 136-140, Bryant's translation, 
t Prehistoric Times, chapter xvi. 



10 An Introduction to Political Economy 

The modern phases of civilization have been rapid in their 
changes. The progress of civilization itself has been not in- 
aptly compared to the increase in mass of the rolling snow- 
ball. At first gathering volume very slowly, the rolling sphere 
later takes on new accretions the more rapidly because of 
the ever-widening superficial area of the mass. In the same 
way man, gaining only in the course of long centuries the 
very slightest control over nature, develops his powers until 
previous acquisitions enable the race to invent and incorporate 
new expedients with ever-increasing ease because of the knowl- 
edge and power already gained. By a parallel thread of con- 
siderations we may, perhaps, understand better why advance 
in the material elements of civilization has been slower in 
gathering headway, but more rapid when the impetus has 
once been fairly gained, than has been the case with the prog- 
ress of the mind of man in the fields of literature and art. 

Economic Life Increasingly Social. — The economic life 
of civilized man is in a very great degree social, and is 
becoming increasingly social in ever-widening economic 
areas with the progress of civilization. The greater part 
of what is produced in our industrial centers is not for 
the consumption of the producers themselves, but for others ; 
while the wants of these producers are satisfied by what 
others elsewhere in the industrial field are producing for 
exchange with them. Go to Gloversville, New York, and you 
will find thousands engaged in the production of gloves which 
they themselves use at most in very few cases. Go to West- 
field, Massachusetts, and you will find men busy in making 
horsewhips, very few of which the makers will ever have oc- 
casion to use. Further east in Haverhill, in Lynn, in Spencer, 
Natick, Marlborough, Brockton, and Worcester, you will find 
other thousands, men and women, young and old, passing the 
greater part of their lives in the production of shoes which 
you and I and millions of others in America and Europe are 
later to wear; and, more than that, you will find each place 
a center for the production of some one kind of foot-wear. 
Yet you would doubtless find on inquiry that very many of 



The Economic Life of Man 11 

these working men and women and children, and many of 
the capitalists with whom they are joined in the great work 
of production, have not worn a shoe to the making of which 
they have themselves directly contributed. Even in agricul- 
ture the same state of things may be found, though in a far 
less marked degree. The cotton planters of the South and 
the laborers upon the plantations obtain a great part of their 
living from the results of labor expended upon a product 
which enters but little into the satisfaction of their manifold 
wants. Many a landowner along the shore of Lake Erie, 
in Chautauqua County, New York, devotes his land almost 
exclusively to the production of grapes, yet himself consumes 
directly but an infinitesimal part of the output. Indeed, one 
need not move from his own neighborhood to see the same 
point illustrated, perhaps on a smaller scale. Does not the 
reader see all about him factories, large or small, in which 
human labor is expended upon goods that are not destined for 
the use of the producing laborer ? 

It may seem that this point has been dwelt upon at too 
great length, but the author is led to such insistence upon it 
for two reasons. In the first place it is one of the most es- 
sential phenomena of economic life, and one's whole concep- 
tion of economics, public and private, of the importance of 
ethical considerations, of the proper attitude of the state, will 
be influenced or even determined by the manner in which this 
concept finds place in his mind. The second reason is closely 
involved with the first. There is no commoner mistake in 
economic thought or reasoning than the omission, of this 
fundamental fact of social interdependence from the picture 
which a man tries to form for himself of the conditions in- 
volving concrete economic problems. 

As has been said above, this social interaction is increasing 
in ever-widening circles. In a very real sense we may say that 
nations to-day form economic unities. Just as legal and 
ethical conceptions have kept on broadening as they deepened 
until to-day the one and the other are beginning to be felt 
even in international relations, so economic interdependence 



12 An Introduction to Political Economy 

with all that it implies, has passed the barriers of national ex- 
clusiveness and is coming to be felt throughout the wide world. 
Events of the last decade have marvelously hastened the al- 
ready rapid movement. 

But we cannot yet be said to have reached a period of 
a world economy. National economy and economic na- 
tionalism are actual; economic internationalism, or the grow- 
ing body of relations among nations,, is rapidly extending and 
expanding toward the goal of world economy. 

Economic Life Defined. — We have already used tentative 
definitions of the term economic life, but we are now prepared 
for a more complete one. Summing up what has been said, 
we may define the economic life of a people as its regular 
systematic activity for the - acquisition and employment of 
goods — commodities and services — for the satisfaction of its 
wants. With a similar meaning we may speak of the eco- 
nomic life of any person — natural or artificial — as, for in- 
stance, of a farmer, or a railway corporation, or a city. We 
sometimes use simply the word economy for the larger ex- 
pression economic life, as when we speak of the economy of a 
family, a city, or a nation. 

This economic life of a people embraces the economic ac- 
tivities of all its individual members and of all its political 
units, when engaged in the acquisition and employment of 
economic goods, not merely for the satisfaction of the wants 
of individuals as such, but also for the satisfaction of the 
wants of all its institutions, educational, religious, and gov- 
ernmental. 

Political Economy not Restricted to Material Considera- 
tions. — We must repeat that the economist, as such, is not con- 
cerned merely with the material life of men, for there is not 
a phase of social life which does not fall within his province. 
But other than the material phases of life must in most cases 
be considered indirectly rather than directly. The economist 
and the physician, for example, both study and discuss the 
sanitary conditions of cities, and both propose measures to 
lessen the awful mortality among the children of the city 



The Economic Life of Man 13 

poor, but they come to the consideration of this same topic 
by very different routes. The physician considers directly the 
health of the people, while the economist, finding one of the 
factors of production in an unsatisfactory or diseased con- 
dition, is led to a study of the causes and remedies. 

The Economic Life not for Self. — Certain results which 
flow from the considerations that have been offered in the 
preceding paragraphs must now be commented upon more 
particularly. Tn the first place, as we have tried to explain 
with some fullness, it is characteristic of the economic life 
of man that it is spent directly not for self, but for others. 
Goods are produced not for use, but for exchange. It follows 
as a direct consequence of this that the division of society 
into economic classes, with a widely extended division of labor, 
is one of the fundamental facts of modern economic life. 
One class produces one thing, another class a second thing, 
and so on indefinitely, and as the variety of commodities is 
great the number of economic or industrial classes is cor- 
respondingly large. 

Dependence of Man upon Man. — The dependence of man 
upon his fellows is another fundamental fact. When we 
speak of the increase in the number and importance of com- 
mercial and industrial relations, we simply give expression 
to a movement which all can observe. But relationship in it- 
self means dependence. There cannot be a relation of one ; it 
must be a connection between two or more. This economic 
dependence of man upon man increases with the progress of 
industrial civilization. In this single phrase lies locked 
up the explanation of many of the complicated and distress- 
ing phenomena of our times. 

Let us take, as an illustration of this dependence of the 
modern man, the manufacture of watches, and let us regard 
first the case of an artisan who makes the entire watch. If 
the husbandman is shiftless or unskillful, he will have no sur- 
plus grain to exchange for a watch. If the miner stop his 
work, the silver, gold, and other metals which enter into the 
watch will not be supplied. If the spinner and weaver cease 



14 An Introduction to Political Economy 

their operations, the watchmaker will suffer for clothing. If 
the shoemaker become indolent, the watchmaker will be forced 
to go without covering for his feet. 

Let us now take another step. Suppose that the artisan 
manufactures, not a whole watch, as was common formerly, 
but only a small part of one, as is the rule at present — let us 
say the three hundredth part of a watch. How greatly is his 
dependence upon others increased! He is now dependent 
upon hundreds of others engaged in the production of watches, 
as well as upon other industrial classes. It is not improbable 
that he may be dependent upon a million of his fellows for the 
necessaries of life, so wonderful is the economic society in 
which and through which we live. 

Every day brings fresh illustrations of the growing eco- 
nomic dependence of man upon his fellows, showing that 
production is becoming more and more social in its nature, 
and less and less individual. Eailway strikes offer a good il- 
lustration of the interdependence of men in industrial so- 
ciety. The entire economic life of the nation, and {he life 
even of other nations, is affected in such cases by the acts 
of comparatively few. A recognition of this economic de- 
pendence of man upon man has even led to important con- 
sequences in legislation and in judicial decisions, limiting 
the industrial liberty of those engaged in particularly im- 
portant occupations. It is plainly admitted that in special 
cases a man's work concerns not merely himself, but the gen- 
eral public, and the difference between one sort of work and 
another is not so much of the kind as of the degree of so- 
cial necessity. A great strike, like that of the Heading 
coal miners in 1888, or the Chicago strike of 1894, is always 
found to affect millions of people in many different and often 
unexpected ways. 

The old household economy was, relatively speaking, in- 
dependent. What the household produced it enjoyed, and 
it might live in the midst of plenty while its neighbors were 
suffering from all kinds of economic calamities. There was, 
of course, some slight kind of mutual dependence within any 



The Economic Life of Man IS 

small neighborhood, bnt this rapidly grew less with increase 
of distance, and often almost disappeared at a distance of a 
hundred miles. Charles Egbert Craddock's book, The Proph- 
et of the Great Smoky Mountains, describes well a rude kind 
of isolated economic independence. The people of this region, 
exchanging goods for goods and using no money, are troubled 
by no questions of the currency. Speaking of the settlement in 
the Big Smoky, Craddock says: "It was hard to say what 
might be bought at the store except powder and coffee, and 
sugar perhaps, if 'long sweetenin' ' might not suffice ; for each 
of the half-dozen small farms was a type of the region, pro- 
ducing within its own confines all its necessities. Hand- 
looms could be glimpsed through open doors, and as yet the 
dry goods trade is unknown to the homespun-clad denizens 
of the settlement. Beeswax, feathers, honey, dried fruit, arc 
bartered here, and a night's rest has never been lost for the 
perplexities of the currency question on the Big Smoky Moun- 
tians." Silver legislation and greenback decisions were alike 
indifferent to them. Yet how wretched this independence! 
How illusory ! For the chief and most trying dependence of 
man is brought about by physical laws, and associated effort to 
rule nature may and does increase the real freedom of men, 
while it renders man more dependent than formerly upon 
his fellows. At the same time law and custom attempt so to 
regulate and control this dependence of man upon man as 
to mitigate its severities. When the dependence of one per- 
son upon another takes the form of mutual obligation be- 
tween equals in strength, it is often not felt as a hardship at 
all. If we may conclude aught regarding the teleological pur- 
pose of the forces working for man's development, we must 
believe that it was intended by the Governor of the universe 
that man should seek union with his fellows. This union 
is man's salvation. 

Political Independence the Basis of a National Econ- 
omy. — A nation whose economic activity and institutions we 
designate by the term economic life or national economy must 
always be a politically independent people, a number of men 



16 An Introduction to Political Economy 

who are joined together organically in an independent polit- 
ical unity, and who form in this unity an independent state. 
A state is a union of a stationary people, occupying a defined 
territory, and existing under a supreme power and a definite 
constitution. It is, on its psychical side, a continuous con- 
sciousness, is organic, and possessed of a moral personality 
which has its foundations laid in the nature of man and its 
purpose in the welfare of its people.* It should be said in 
passing that the American Union constitutes the real state, 
while the separate commonwealths, having only a limited 
power, are but parts of the great framework of the real state. 

* In Mulford's work, The Nation, the reader will find a clear analysis of 
the concept. 



The Two Great Factors in a National Economy 17 



CHAPTER III 

THE TWO GREAT FACTORS IN A NATIONAL ECONOMY 

The economic life of a nation is the product of two great 
factors, land and man — the physical and the psychical or 
human. We shall proceed to consider these at some length 
in the order just given. 

1. The Land. — When we examine the influence of the land, 
or the physical elements of the environment, on economic life, 
we find that this influence is not a single one, but is made up 
of many elements which have varied widely in their impor- 
tance from age to age. The more important of these elements 
must be given separate consideration. 

Surface. — First of all is the matter of surface. It has mat- 
tered much in early days of the world's history whether the 
surface of a country which a people inhabited was level or hilly 
or mountainous, and the result has been a momentous one in 
molding the destinies of nations, both directly and through its 
influence upon the physical and mental qualities of the peo- 
ple. To the mountain barriers which divide little Greece 
into still smaller parts was due in great measure the isola- 
tion of the various peoples of the land, with all the influence 
that such isolation had upon the art and literature and na- 
tional life of that classic country. To their mountains, all 
agree, the Swiss and the Scotch owe many of the traits of 
mind and body which distinguish them from other peoples. 
These are only more striking illustrations of what, we may 
well believe, happens everywhere on the face of the globe. If 
the rolling, treeless prairies of our own Western country are 
not to leave a characteristic impress upon those who live 
there, it will only be because in modern times such influences 
are constantly diffused by the movements of our population 
from place to place. 



18 An Introduction to Political Economy 

Soil. — We should in the second place take note of the soil 
itself, and of what is below the surface of the earth. The im- 
portance of these considerations becomes manifest when we 
reflect on the character of the national economies of various 
countries, as, for example, of the United States, Germany, 
and Switzerland. American prairies explain, at least in part, 
the invention of the steam-plow; the treasures below the 
earth's surface determine the peculiar economic life of eastern 
and, indeed, of western Pennsylvania; while the sunny hill- 
sides of Germany account for the vineyards along the Rhine, 
and the mountains of Switzerland give a clue to the common 
property in pastures, to the fine cheeses, and to numerous 
small industries, as well as to the sturdy independence and 
democratic institutions of the Swiss people. 

The Water Privileges and their special character must in 
the third place claim our attention, for they are of peculiar 
importance in shaping the economy of a nation. A long 
coast line with good harbors favors international commerce, 
and great inland streams like the Mississippi and Missouri, 
and magnificent lakes like Michigan, Superior, Erie, and On- 
tario, encourage growth of domestic trade. Fine falls of water 
promote manufactures, as we may see in the valleys of the 
Merrimac and Connecticut rivers, in Augusta, Georgia, favor- 
ably situated on the Savannah, and in several of the river val- 
leys in Wisconsin. The scarcity of water in the "far West," 
and the wrong policy which has allowed private individuals to 
gain control over such streams as do exist, go far to illustrate 
how land-monopoly in certain regions of our country was es- 
tablished and is still supported. Present conditions in cer- 
tain large sections of the West, where fertility is dependent 
upon artificial irrigation, threaten even greater trouble for the 
future. 

The Atmosphere is a fourth feature of the physical attri- 
butes that go to make up what we include under the general 
name of land. Differences in atmosphere explain peculiarities 
of economic life. The favorable climate on the shores of 
Lake Erie is an indispensable condition of the fine fruit 



The Two Great Factors in a National Economy 19 

grown in the western part of Xew York State. It is the 
atmosphere of southern California and of Colorado which 
has determined in great measure the population of those 
states. 

Size is another element of importance. The great size of 
a country like the United States, admitting of a rare degree 
of national economic independence and of most diversified 
pursuits, is an immense advantage to the American people, 
and has exercised a profound influence upon our national 
economy. 

The element of mere size has in the last few years taken on 
a new and growing importance which seems fraught with 
mighty consequences for the political relations of the world. 
The great struggle of nations for expanding territory, this 
struggle which has marked in blood the last years of the 
century, carries us back in thought to earlier days when 
the expanding population of the Goths and Yandals 
overran Southern Europe, and still further back to prim- 
itive times when the pressure of population against a pre- 
carious means of existence created constant warfare of tribe 
with tribe. 

Neighboring Nations. — Finally, the position of a coun- 
try with respect to neighbors must affect materially its entire, 
life. German}', situated in a great plain on the continent of 
Europe, surrounded by hostile nations, is an illustration of 
the vast importance of this element. The bare statement of 
the facts relating to the situation of Germany shows that the 
Germans must, as things are, be a warlike nation. And con- 
nected with this is the fact, made clearer by recent events, that 
increasing interrelations of nations, even when situated at a 
distance one from another, has the effect of making them 
"nearer neighbors" both for ill and good. 

2. Man. — The second great factor of the two which produce 
a national economy is the human factor, man; and we must 
treat this also under two sub-heads. 

Economic Activity of Individuals. — The economic activ- 
ity of the individuals of a nation will first receive our atten- 



20 An Introduction to Political Economy 

tion. The national economy is not a mere sum of all private 
economies in the nation, nor of all private economies plus all 
public and quasi-public economies. It may perhaps be better 
compared to a chemical compound which is something differ- 
ent from the elements composing it, and is yet determined 
in its character by these elements. Water is not merely oxy- 
gen plus hydrogen. It is a new thing. We must, then, pass 
from a consideration of the physical situation and environ- 
ment to the economic traits of the human beings who make up 
the nation. Their activity, their perseverance, their integrity, 
and their skill must all be examined if we would understand 
the national economy. 

Legislation and Administration. — The second sub-head 
comprises legislation and administration, and, like the first, 
is one form of the human factor. It is difficult to say whether 
in a perfectly logical arrangement this should precede or fol- 
low the first sub-head, for while it is true that individual 
economic activities largely shape legislation and administra- 
tion, still it is equally true that these latter in turn profoundly 
affect individual economic activities. Thucydides says that 
the explanation of all historical occurrences is that events 
are mutually to one another as causes — that A causes B and B 
in turn causes A. It is as true of men and laws in their re- 
lation as of natural forces that action is accompanied by reac- 
tion. Men make laws, and these in turn in their reaction 
make men what they are. 

The industrial importance of legislation and administra- 
tion is generally underestimated. Even where government 
is reduced to its lowest terms it must still do much to make 
possible the existence of an orderly, peaceable society. What 
would be the condition of property and inheritance without 
laws ? Property could not exist at all, in our present sense 
of that word, without government — for we are now consider- 
ing the right and not the things over which that right is ex- 
ercised. Laws regulating the inheritance of property exist 
everywhere, and profoundly affect the character of the na- 
tional economy, making one country radically unlike another. 



The Two Great Factors in a National Economy 21 

Laws governing the relations of man to wife are found in 
every civilized nation, and these have to do with economic re- 
lations as well as with other relations. Laws of contract, laws 
establishing patent-rights, laws designed to protect children 
and other helpless classes, may all be mentioned as illustra- 
tions. And we must not forget that laws may exercise a very 
powerful influence for evil as well as for good. It is a com- 
mon tendency of writers in these days to reduce to a mini- 
mum the importance of laws for good as well as for harm. This 
tendency is undoubtedly a safer one than that which prevailed 
before, the tendency to think and write as if all human ills 
could be obviated in a short period by laws framed with suffi- 
cient wisdom. But the pendulum of thought swings too far 
back. Laws are not all-powerful, but they are, nevertheless, 
powerful within wide limits, and the influence of their action 
is cumulative ; it grows by indirect results as well as by direct 
action from generation to generation. 

A comparison of France and England reveals most marked 
differences in their economic life. The English farmer, 
renting his farm from a great landlord, and the agricultural 
laborer are prominent features of rural life in England, while 
small peasant proprietors, farmers tilling their own little es- 
tates, attract the attention of the traveler in France. What 
is the cause of this difference ? Certainly the law has much 
to do with this; for in England primogeniture and entail 
obtain, while in France a father is compelled by law to 
divide the bulk of his property equally among his children. 
It has often been claimed, and with much appearance 
of reason, that the English law, by encouraging the bequest 
of the bulk of great estates to the eldest male heir, has fur- 
nished to the field of exploration and adventure a swarm 
of "younger sons" of noble blood, and that this fact has 
had much to do with England's predominance as a colonizing 
power. 

With the progress of civilization, land, or the physical ele- 
ment, becomes relatively less important, and man, or the hu- 
man, psychical element, becomes of relatively greater signifi- 



22 An Introduction to Political Economy 

cance. In fact, it is precisely this gain in importance 
of the one element upon the other that is sometimes said to 
constitute civilization. Man's domination of nature marks 
the progress of the race. Once a city could exist only on a - 
great body of water, but the highways of modern times en- 
able cities to spring up a hundred miles from any important 
navigable stream. 



Evolution of Economic Civilization 23 



CHAPTER IV 

EVOLUTION OF ECONOMIC CIVILIZATION" 

The Law of Change. — The next main point to engage our 
attention in our examination of the characteristics of a na- 
tional economy is the fact of successive changes in its 
historical formation. Nothing marks the man of thought 
more clearly to-day than his grasp of this fundamental con- 
cept of orderly change. We are all familiar with the blindness 
to this truth that is revealed in the talk of the uneducated, and 
it is not impossible to hear it from the lips even of those who 
might be expected to have greater light. Whenever changes in 
laws or institutions are suggested, they will smile in a superior 
kind of way and say, "It does very well for the theorist to talk 
about such things, but it is only theory." Conditions of prop- 
erty, labor, and capital cannot, in their opinion, be changed, 
and they assume that such as they are now they will continue 
to be. "No/' say they, "things will go on in pretty much the 
same good old way." Now, if there is any such thing as a good 
old way in nature or in society, the man has never yet appeared 
who discovered it. There is none. The assumption that 
there is such a thing is a mere fiction. Take the one economic 
factor of labor. As we trace it through the centuries we find 
it in a condition of slavery, in a condition of serfdom, and in 
a condition of free contract. But these are only names for 
the three general conditions in which labor has been found. 
Within each one of these conditions there has been a multi- 
tude of changes. Slavery has assumed a vast variety of 
forms, some extremely harsh and some extremely mild, with 
almost infinite gradations between the two extremes. Serf- 
dom at times appears as harsh as slavery, and again it is found 
in forms which differ little from freedom, and which are 



24 An Introduction to Political Economy 

doubtless in some respects superior to the condition of the 
ordinary laborer who is free to make his own bargains, or who, 
as we say, lives under the regime of free contract. Free con- 
tract, in its turn, means many different things : sometimes, in- 
deed, it means the oppression of the employee by the one who 
employs labor, but more often and more uniformly it means a 
state of practical dependence of the laborer on account of the 
pressure of economic necessity. At times, indeed, it means a 
dependence which virtually amounts to slavery, as has been 
seen in the case of tailors in some of our large cities employed 
by so-called "sweaters," or small contractors, who have re- 
duced their workmen to such a condition that perhaps a dozen 
have only one coat among them, and are kept prisoners in the 
dens where they work. Combinations of laborers are now 
introducing changes in the regime of free contract, for organi- 
zations make contracts for a multitude of individuals, substi- 
tuting what is called collective bargaining for the older indi- 
vidual bargaining. Laws undergo change, and institutions, 
which are the outgrowth of law and custom, are therefore 
gradually but perpetually undergoing modification. Property, 
for instance, is in a continual flux. A large part of landed 
property was once common property; that is to say, it was 
owned by a body of persons, town, state, or city, in their or- 
ganic capacity. Village communities once owned land which 
was usually divided into "commons" and individual holdings. 
The greater part of land in civilized nations has, within the 
last few centuries, become the property of individuals, but we 
now observe a reverse process of some significance. In modern 
countries forests are once more becoming public property, and 
the process has begun even in the United States. It is bound to 
continue. We also see cities purchasing — in some cases re- 
purchasing — land for public purposes, especially for pleasure 
grounds. One great species of property — railways — has in 
Prussia passed out of private hands into those of the state, 
and the conditions under which their railways have been 
chartered are likely to bring this about in a comparatively 
near future, in Austria, France, and elsewhere. The tenure of 



Evolution of Economic Civilization 25 

private property — or the conditions under which it is held — 
also changes from time to time, now in one direction, now in 
another. 

The Evolution of Law. — A distinguished student of early 
law, Sir Henry Sumner Maine, has clearly shown the perpet- 
ual changes which all law undergoes. "We are in danger," 
says this jurist, in his Early Law and Custom, "of overesti- 
mating the stability of legal conceptions. Legal conceptions 
are indeed extremely stable ; many of them have their roots in 
the most solid portions of «ur nature. . . . This great stabil- 
ity is apt to suggest that they are absolutely permanent and 
indestructible. . . . What I have stated as to the effects upon 
law of a mere mechanical improvement in land registration 
is a very impressive warning that this position is certainly 
doubtful, and possibly not true. The legal notions which I 
have described as decaying and dwindling have always been 
regarded as belonging to what may be called the osseous 
structure of jurisprudence ; the fact that they are nevertheless 
perishable suggests very forcibly that even jurisprudence itself 
cannot escape from the great law of evolution." 

The Necessity of Historical Study. — We find marked eco- 
nomic differences between various periods in the life of one 
nation, and almost equally marked differences between the 
economic institutions of contemporaneous nations. All this 
shows, first of all, the necessity of a careful historical and sta- 
tistical study of economic activities and institutions in the 
past and in the present. In the second place, it reveals to us 
the folly of those who would prescribe the same laws for all 
people and for all times, or who would pass judgment on the 
institutions of Prussia under Frederick the Great as if these 
same institutions existed to-day in America or in England. 

Though the evolution of our economic life proceeds very 
gradually and without interruption, yet in taking a survey 
over human history we discover such marked differences in the 
social institutions of times separated by long intervals that we 
divide this evolution into parts which we may designate as 
stages. This division, therefore, is simply for convenience of 



26 An Introduction to Political Economy 

treatment and of study, and is in no way to be taken as imply- 
ing sharp transitions from one state of things to another. 
Bather, we must always remember that the stages which we 
shall describe shade into one another by such minute steps as 
mark the division in botany or zoology of the varieties which 
show the greatest likenesses between two closely related gen- 
era. We mean, then, by stages in economic development 
changes and advances in the methods of procuring economic 
goods, in their character, variety, and number, in the distri- 
bution of goods, in the manner in which wants for material 
and immaterial goods are satisfied ; in short, in all that is in- 
cluded in the designation economic life. 

Prehistoric Economy. — Prehistoric man, as there is abun- 
dant evidence to prove, obtained material goods, as beasts do, 
by simply taking possession of natural products, exercising 
little or no control over nature, and protecting himself from 
the elements only by caves or the simplest contrivances. The 
construction and use of his rude buildings appear to have been 
learned from the lower animals, and anthropologists agree 
that even the simplest improvements in this and other matters 
were the work of ages. Man was in such a condition a slave 
of nature. Human law did not restrain him. There was no 
law, as there is no law to-day in the "heart of Africa." Nev- 
ertheless, the modern man, whose daily life in a thousand 
ways is guided, directed, and controlled by the statutes framed 
by himself and others, is a thousand times freer. Wise laws 
increase freedom. Economic freedom is a far more impor- 
tant thing than political freedom, but the two are quite dif- 
ferent. What advantage is it to me to have the legal right to 
take a trip around the world if I never have the economic 
means — never have the economic freedom — to enable me to 
do so ? What advantage is it to be able to seek another em- 
ployer, provided there is no other who cares for my services, 
and my present employer alone stands between me and death 
by starvation ? Thus the savage is free to come or to go, to 
work or to play, so far as laws of man are concerned, but na- 
ture enslaves him more pitilessly than would Draconian laws. 



Evolution of Economic Civilization 27 

"The true savage/' says Sir John Lubbock, in his Prehistoric 
Times, "is neither free nor noble; he is a slave to his own 
wants, his own passions; imperfectly protected from the 
weather, he suffers from the cold by night and the heat of the 
sun by day ; ignorant of agriculture, living by the chase, and 
improvident in success, hunger often stares him in the face, 
and often drives him to the dreadful alternative of cannibal- 
ism or death." With the foregoing passage should be com- 
pared the following sentences from Sir Henry Maine's Early 
Law and Custom: "With us, I need scarcely say, there is| 
little conscious observance of legal rules. The law has scj 
formed our habits and ideas that courts of justice are rarely 1 
needed to compel obedience to it, and thus they have appar-f 
ently fallen into the background." 

The Economic Stages. — This earliest existence of the hu- 
man species — earliest at any rate from the standpoint of 
evolution — is something so remote, and something about 
which our knowledge is so fragmentary and uncertain, that 
we are scarcely able to treat it as a separate stage in economic 
evolution. It is for that reason that we use the term prehis- 
toric in describing the economy of that early time. We 
therefore begin our description of economic stages with the 
time when men had learned to kindle fires, to eat meat, and 
to live in some kind of political communities, however imper- 
fect, and we divide economic development from that time to 
the present into five stages, as viewed from the standpoint of 
the production of material goods, and into three stages, as 
viewed from the standpoint of the transfers of these goods. 
The second classification of stages must be regarded as sub- 
ordinate to the first. 

The following are the stages into which we may roughly 
divide economic progress from the standpoint of production : 

1. The hunting and fishing stage. 

2. The pastoral stage. 

3. The agricultural stage. 

4. The trades and commerce stage. 

5. The industrial stage. 



28 An Introduction to Political Economy 

But as we have just said, we may now ask the further ques- 
tion, How are goods transferred from person to person? 
When we examine historically the methods of transfers of 
goods, we find that we may divide economic progress from the 
feeble beginnings of civilization to our own day into three 
stages, as follows: 

1. The period of truck economy. 

2. The period of money economy. 

3. The period of credit economy. 

The stages included in both of the above classifications will 
be briefly described in the following chapter. 



Literature. — Sir John Lubbock, Prehistoric Times, chapter 
xvi, entitled "Concluding Kemarks;" Drummond, Tropical 
Africa, chapter iii, on "The Aspect of the Heart of Africa: 
The Country and People;" Stanley, In Darkest Africa; 
Lester F. Ward, Dynamic Sociology, Introduction; M. de 
Laveleye, Primitive Property, especially his preface to first 
edition, and chapter i. 



Economic Stages 29 



CHAPTER V 

ECONOMIC PROGRESS VIEWED FROM THE STANDPOINT OF PRO- 
DUCTION AND FROM THE STANDPOINT OF TRANSFERS 

I. Economic Stages Viewed from the Standpoint of Produc- 
tion 

1. The Hunting and Fishing Stage. — In the first economic 
stage of man's development nature is the principal factor in 
production, labor, and to an even greater degree capital, 
playing very subordinate roles. Man still contents himself 
with what nature gives. Labor is expended chiefly in procur- 
ing her bounties. Animals are not tamed and rendered sub- 
ject to man ; still less can any traces be found of attempts to 
improve useful animals by breeding, or, in other words, to use 
Mr. Alfred Russel Wallace's happy phrase, by the substitution 
of man's selection for natural selection. Products are not 
transformed by manufacturing processes. Goods are not even 
stored up in time of abundance to make provision for a future 
time of dearth. The American Indian, in places where he has 
not been elevated by contact with a higher civilization, is a 
type of this stage of evolution. He lives in a condition of 
gluttony when the hunt is successful, wasting good food with 
unconcern, and suffers the following week when good fortune 
no longer waits on his bow and arrow. In this respect, as in 
others, he exhibits those traits which mark the child among 
civilized men. 

Economic action is relatively isolated. It is confined 
mainly to the family, within which there is a rudimentary 
division of labor, but no common organic activity. Goods are 
acquired not for exchange, but for immediate use, although, 
if we may judge from the traits of American Indians and the 



30 An Introduction to Political Economy- 

negroes of Africa, there is no unwillingness to make exchanges 
when opportunity offers to get something new and attractive. 
Indeed, it is a matter of almost universal observation that 
want and the economic activity necessary to satisfy the want 
may be stimulated by presenting to the view of savages ob- 
jects which are unfamiliar to them, but which minister to the 
lowest cravings of human nature. 

As there is no real division of labor, there are no economic 
classes; no employers, no employees, and no industrial con- 
flicts. The very vocabulary of modern political economy, in- 
cluding all such words as wages, capital, strikes, lockouts, 
taxation, arbitration and conciliation, and customs duties, 
must, in the nature of things, be wanting. The phenomena 
of so-called over-production or under-consumption and crises 
are as unknown to people living in this stage as is the econ- 
omy of the possible inhabitants of Jupiter to us. The greater 
part of property is common, as is all land. Private property 
is confined to one's arms, one's household goods, and the im- 
mediate rewards of one's labor. 

Hunting Tribes. — Although both belong to the same eco- 
nomic stage in our classification, there is some difference be- 
tween those living primarily on the products of the chase, and 
only secondarily on fish, and those who reverse the process. 
The environment of each class modifies essentially its char- 
acteristics. Confining ourselves for the moment to those Hy- 
ing in the hunting stage, we find a high development of such 
qualities as cunning, endurance, skill, and bodily strength, but 
we also find that the mode of life does not lead to the develop- 
ment of technical skill nor to a reflection upon the processes 
of nature. This condition of life presupposes large terri- 
tories and a sparse population. It has been estimated that 
in a population like this, living solely on the products of the 
chase, each hunter requires fifty thousand acres, or seventy- 
eight square miles, for his support, an area which in Ehode 
Island maintains, on an average, over twenty-five thousand 
people. In this connection it may be of interest to note that 
careful students believe the present American Indian popula- 



Economic Stages 31 

tion to be much larger than it was at the time of the arrival of 
the European races, an opinion at variance with a commonly 
received notion. There seems to be reason to suppose, however, 
that the above calculation regarding the possibility of popula- 
tion among savages is an under-estimate of the population 
which can be supported by the chase. It is certainly an under- 
estimate if any subordinate means of support exist, like fish- 
ing. Berries have almost always been a minor means of 
support, as has other wild fruit. Even making this allowance, 
however, we still conclude that the population must be sparse, 
and that for the barbarians living in this stage wars may be 
regarded as an economic necessity whenever there is not an 
abundance of unoccupied land, just as cannibalism has been 
described as an economic necessity for human beings of the 
most degraded sorts. The perpetual warfare with man and 
beast, which is a condition of his existence, develops the 
bravery that has been so much admired in the American 
Indian. 

Fishing Tribes. — As might be expected, those primitive peo- 
ples who live primarily on the products of fishing are more 
peaceable than are the hunting tribes. Their population 
is denser, both because of their more peaceful disposition 
and because of the fact that a smaller area is sufficient for 
the support of a given number of people engaged as they 
are. A larger accumulation of the products of past labor — 
or capital — is found among them because they have less need 
of frequent migrations. Dwellings are of a more permanent 
character, and boats and fishing implements are constructed. 
Labor is a more important factor, and on the whole the power 
of man over nature is greater than among the hunting tribes. 
People living in the fishing stage can now be found only in 
the frigid zone. Tribes living on the produce of fishing have 
seldom become nomads, but have commonly become agricul- 
tural, and often they have taken early to commerce and navi- 
gation. 

2. The Pastoral Stage. — When hunting tribes begin to do- 
mesticate animals they enter usually upon the pastoral stage. 



32 An Introduction to Political Economy 

The earliest chapters of the Bible give us vivid pictures of 
peoples living in this period of economic development. Man 
no longer lives merely by taking what nature offers, but he 
acts upon nature. He has begun to gain control over nature. 
The element of labor comes forward more prominently, in 
seeking pastures and in protecting the domesticated an- 
imals. Families, clans, and tribes living in this stage have 
no settled abiding place, but wander to and fro on the face 
of the earth in search of food for their flocks. As land is not 
cultivated, a large area is required to support a single fam- 
ily, and over-population is therefore a frequently recurring 
phenomenon. In case of pressure of population, tribes either 
separate, part going one way and part another, or they at- 
tempt to get more land by conquest of others. In the thir- 
teenth chapter of Genesis occurs a passage describing such a 
separation: "Abram was very rich in cattle, in silver, and in 
gold. . . . And Lot also, which went with Abram, had flocks, 
and herds, and tents. And the land was not able to bear 
them, that they might dwell together : for their substance was 
great, so that they could not dwell together. And there was a 
strife between the herdmen of Abram' s cattle and the herdmen 
of Lot's cattle. . . . And Abram said unto Lot, Let there be 
no strife, I pray thee, between me and thee, and between my 
herdmen and thy herdmen. ... Is not the whole land before 
thee? Separate thyself, I pray thee, from me: if thou wilt 
take the left hand, then I will go to the right ; or if thou de- 
part to the right hand, then I will go to the left." Where can 
there be found a more perfect picture than this which sets 
before us so neatly and so vividly the economic conditions of 
the time and place ? 

But, as has been said, attempted conquests frequently take 
the place of such peaceful separation, and tribes which are 
too large for the territory already occupied seek to gain more 
room by displacing others. It was such over-population that 
brought about the warlike incursions of barbarian hosts into 
Europe from the heart of Asia, and the wanderings of the 
nations in the early centuries of the Christian era. This part 



Economic Stages 33 

of history, like others, cannot be understood without a knowl- 
edge of political economy. 

Land was still for the most part common property; com- 
mon, that is, to members of the tribe, for rights of members of 
other tribes to property or even to life were not recognized. 
Within the tribe or nation, if we may properly use the latter 
expression, there was a very real brotherhood, but ethical ties 
did not pass beyond tribal bounds. Stranger and enemy are 
often denoted by the same word, and the idea thus indicated 
has lingered long in the common speech of men. Even the 
tribal claims to land can scarcely be designated by the modern 
word property. The only right in the land was one of pos- 
session, which is really the right of use as distinguished from 
the right of property. This must not be understood to mean 
that there has ever been a time when no such thing as a 
right of private property in land existed, or when land was 
never bought and sold. Stationary peoples existed contempo- 
raneously with wandering tribes, and, even while the greater 
part of the land was held in common, some pieces of land 
may have been private property. Abraham, it will be remem- 
bered, bought of Ephron, the son of Zohar, a field for a burial 
place for Sarah, his wife, and paid therefor four hundred 
shekels of silver. Yet the ceremonies connected with the pur- 
chase indicate that the land had belonged to the tribe, and 
that even at the time of the transaction the sale was not 
merely a private one between Abraham and Ephron, the son of 
Zohar, but was one in which the members of the tribe felt 
themselves concerned. The pastoral stage, nevertheless, al- 
lowed large accumulations of property in the form of cattle 
and precious stones, precious metals, and finely woven fabrics, 
or, in general terms, of capital. 

Extremes of Wealth. — We also find in this stage enormous 
differences among the possessions of various members of the 
clan or the tribe. The poor, the well-to-do, and the rich al- 
ready exist. Abraham, for example, was "a mighty prince." 
Among the sons of Heth men are divided into employers and 
employed — the latter generally slaves — and economic classes 



34 An Introduction to Political Economy 

are formed. Slavery had not been a possibility in the first 
economic stage, for maintenance without weapons was impos- 
sible, and masters could not arm their slaves. The conquered 
had therefore been slaughtered in that earlier stage, but in 
the pastoral stage their lives were frequently spared and they 
were reduced to slavery. Thus a milder form of warfare was 
introduced. Women and children were evidently spared 
earlier than were the conquered males, who were frequently 
massacred even in the days which followed the beginning of 
the pastoral stage, and, indeed, even after the later stages of 
economic development had begun. 

A more regular economic life and a higher degree of prob- 
ability of permanent sufficiency of food succeeded the former 
irregularity of superfluity and direst want. 

Exchanges in the pastoral stage are still the exception. The 
economy of each family or household is for the most part 
sufficient unto itself. 

The leisurely and often quiet mode of life and the nature 
of the work — watching the flocks in the open fields — leads to 
an observation of natural phenomena, especially those of the 
heavens, and astronomical knowledge in a rudimentary form 
arises. Eeligion and poetry were also the outcome of their 
contemplative and reflective life. As regards the matter of 
poetry, it is to be noted that highly figurative speech is al- 
ways common in the language of shepherds. 

We find among these nomads a high appreciation of per- 
sonal freedom, and we find warlike customs flourishing, but 
there is among them no feeling for home. Patriotism, as we 
understand it, was of a later growth. 

3. The Agricultural Stage. — Agriculture is in the third 
stage added to the keeping of flocks, to the chase, and to fish- 
ing. A greater variety of food is thus offered to man, who 
now ceases his wandering life. A denser population becomes 
possible, and the union of different settlements into a larger 
political whole gradually forms the modern nation. Dwell- 
ings now become finer and more substantial, and in the course 
of time there is an increase in the number of objects included 



Economic Stages 35 

in private property. In consequence of these conditions the 
interests on the side of quiet and orderly progress become 
stronger. It is, however, not clear that increase in the num- 
ber of objects included in private property always accom- 
panies immediately or for some time thereafter the transition 
from the pastoral and the nomadic stage to the agricultural. 
Indeed, if we may judge from the researches of Sir Henry 
Maine, there appear to be evidences of an opposite tendency. 
Village communities were probably the earliest form of set- 
tled agricultural life among the Aryans, and these continue 
in East India, in Eussia,and elsewhere, even to the present day. 
Land belonged to the village, and the arable portion of the com- 
mon territory was allotted from year to year or for longer 
periods to the members of the community, while pasture land 
and forest land were used in common. This has been generally 
recognized and acknowledged by students in this field, but it 
appears that frequently movables were also common property. 
Even to-day, in Montenegro, there are village communities in 
which the earnings of a member who has left the community 
and gone out into the world are still claimed by the community. 
Sir Henry Maine tells us also of a Eussian village, or Mir, the 
chief income of which is derived from a boarding school kept 
by ladies who are members of the community. Where, how- 
ever, there has been no village community, or where a pre- 
viously existing community has ceased to be, rights of private 
property appear to expand gradually and steadily, and, in 
accordance with the general evolution of economic society, to 
cover an increasing number of things. The general rule in 
this stage is communal property in land with personal rights of 
usufruct. Each one has certain rights according to his needs 
and situation — possibly also according to rank — in the com- 
mon pastures and common lands. Love of home and country 
now for the first time arise. Production is still largely carried 
on in comparative isolation. Things produced are consumed 
chiefly in the household, and few exchanges take place. Such 
commerce as exists ministers chiefly to luxury. This long 
continued to be the case, and the fact serves to explain, at 



36 An Introduction to Political Economy 

least in part, the hostility which ancient philosophers and 
the fathers of the Church displayed toward commerce. 

This stage endured for centuries among many peoples. 
In the development of our modern civilization it did not 
evolve into the higher form until the tenth and eleventh cen- 
turies, when the movement which the Germans call the Stadte- 
bildung — the building of the cities — began. It has not been 
wholly displaced by subsequent stages of economic life, but 
only modified, unceasingly modified, with the progress of 
time. Even to-day the marks of this stage of life are clearly 
discernible in our industrial life in America. The word 
"common," as applied to certain public lots in many old cities 
and villages, is an instructive survival. The Boston "Com- 
mon," to which Emerson as a lad drove his mother's cow, and 
the "commons" of other New England towns, pieces of land 
still left in common ownership, are parts of larger tracts on 
which all citizens had rights of pasturage and other rights of 
usufruct. 

4. Trades and Commerce Stage. — In the fourth stage hand 
labor, so called, becomes an important factor. Raw materials 
are transformed by the skill of man, and his power over na- 
ture becomes more marked. Commerce does not spring up 
suddenly now, for it has already existed, but it begins to play 
a far more important part in industrial life, and the finer 
products of one region or country are exchanged for those of 
another. Even bulky products not quickly perishable are 
transported long distances when this can be done by water. 
On the seacoast and on great rivers important cities arise, 
and become centers of culture and refinement. Mines are 
worked, the use of money becomes more general, and a radical 
change in the entire economic life of the nation is observed. 
Social life now becomes truly organic, and the people who 
live it have entered upon the era of modern civilization. 

Economic Classes and the Rise of Cities. — The division of 
labor, beginning on estates of powerful temporal and spir- 
itual lords and in convents, gradually extends, and popula- 
tion is divided, according to occupation, into a large number 



Economic Stages 37 

of economic classes. Cities, the most active centers of the 
new life, become objects of hostility to old magnates, and as a 
result they frequently unite for self-protection with distant 
and more powerful princes against feudal lords, and at the 
same time strengthen their central powers. Dependents of 
feudal lords are encouraged to flee to the cities, and the legal 
maxim is established, "City air makes free." Eesidence in a 
city for a year and a day makes a former serf a free man. 
Guilds of free men are gradually developed, and these foster 
the growth of trades and commerce, using their power for 
good at first, but later, in a period of decay, for evil — in the 
establishment of exclusive privileges and onerous monopolies. 
Changes in economic legislation and administration take 
place. Nonmaterial products are bought and sold, and writ- 
ers, teachers, and artists find a place as regularly established 
classes in the national economy. In antiquity, the Egyptians, 
Phoenicians, Assyrians, Medes, Persians, Greeks, and Romans 
occupied this position. The civilized nations of the present 
day lived in this stage until the nineteenth century, and the 
people in our Southern States did not issue from it until the 
civil war. 

5. The Industrial Stage. — The industrial stage is the period 
in which the great civilized nations of the earth are now 
living, and to a description of which the rest of this book will 
therefore be chiefly devoted. We observe in this stage far- 
reaching changes in the economic arrangements of society, 
due largely to a marvelous extension of the principle of divi- 
sion and combination of labor. This was made possible — was 
indeed necessitated — by the application of steam to industry 
and to improvement in the means of communication and 
transport. Political freedom and nominal legal equality of all 
men — once regarded as a mere Utopia — are now realized. 
The sciences and arts have advanced with giant strides. 

Before we pass on to a description of some of the general 
characteristics of modern economic life we must devote a few 
pages to a discussion of the three stages into which economic 
progress may be divided with respect to transfers of goods. 
4 



38 An Introduction to Political Economy 

II. Economic Stages Viewed from the Standpoint of Transfers 

of Goods 

1. Truck Economy. — Truck economy is the term used to 
denote the character of the economic life of the period which 
precedes the use of money. The word barter is often used 
to designate the life of the period, but that term is too 
narrow. Barter implies mutual or two-sided transfers, where- 
as the element of reciprocity is often absent in transfers of 
goods. We have in our study to do not merely with two-sided 
transfers, but also with one-sided transfers, such as taxes, 
gifts, and inheritances. Barter, therefore, though it comprises 
the greater part of transfers, is to be included as a sub-head 
under the more general category of truck economy. We have, 
then, 

A. One-sided transfers of goods. 

B. Two-sided transfers of goods, or barter. 

And the second kind of transfers we must further classify 
as follows: a, barter of material goods for material goods; 
b, barter of material goods for services; c, barter of services 
for services. 

2. Money Economy. — In the second period in the history 
of transfers the use of money as a medium of exchange be- 
comes common and displaces truck for the most part, though 
transfers without the intervention of money are still frequent. 

3. Credit Economy. — In the third stage credit is the in- 
strument for the greatest number of exchanges. Money is 
still used, but, in places where the highest development of 
credit economy obtains, it is used only as "small change." 
Banks are the chief organs of society for credit economy. The 
volume of money is small when compared with the amount 
of annual transactions in what are called instruments of 
credit, by which we mean principally checks, drafts, and bills 
of exchange. The receipts of banks are calculated in terms 
of money, but an American bank in a great city will in a 
day's business frequently handle over fifty dollars in instru- 
ments of credit for every dollar in actual money. It should 



Economic Stages 39 

be remembered in this connection that many peculiarly modern 
phenomena are due to credit. Thus crises and so-called over- 
production are undoubtedly closely connected with credit 
economy. 

The Economic Stages not Mutually Exclusive. — It must 
be borne in mind that the two classifications which are here 
given view the historical development of economic life from 
two standpoints, and that the second classification is to be 
regarded as subordinate to the first. If we were to attempt 
to bring the two classifications into relation in point of time, 
we would say that the period of truck economy is coincident, 
in a rough kind of way, with the hunting and fishing and 
pastoral stages, and continues on into the stationary agricul- 
tural stage until that begins to pass over into the trades and 
commerce stage. True, a great deal of truck and barter still oc- 
curs in the trades and commerce stage, but money has become 
a general medium of exchange, and, all things considered, this 
stage might with propriety be called a period of money econ- 
omy. Credit economy is really only a part of the industrial 
stage, and belongs to the nineteenth century. One fact alone 
is sufficient to illustrate the vast change from the eighteenth 
century to the nineteenth. Banks existed before the present 
century, but were comparatively few in number, were chiefly 
confined to a few cities, and were not an essential part of the 
entire national economy. There were, for example, only three 
banks in the United States at the time of the adoption of the 
Constitution, while now some four thousand national banks 
are doing business in our country in addition to over eight 
thousand banks that are organized under state laws. Bank- 
ing means credit economy. 

It has been urged, in criticism of our second classification, 
that money does not exclude truck, and that credit does not 
exclude money, but this can scarcely be offered as a valid 
ground against the division of economic progress into these 
three periods. For that matter, money is found even in the 
period which we ought to call truck-economy. These terms 
signify simply the dominant characteristics of periods which 



40 An Introduction to Political Economy 

gradually and almost imperceptibly shade into one another, 
just as in classifications in the organic sciences the vegetable 
kingdom shades off into the animal kingdom. 



Literature. — The literature in English touching this eco- 
nomic progress of man through stages is inadequate, although 
in recent years it has received many valuable accessions. 
Several valuable works exist on the origin and growth of 
civilization, but they do not deal with the subject from an 
economic standpoint, and it is necessary to place many 
incidental remarks together to obtain a picture — even so im- 
perfect as the one here presented — of the economic life of 
the tribes and nations discussed. The following works will 
be helpful : 

Sir John Lubbock, Prehistoric Times, and Origin of Civ- 
ilization and Primitive Condition of Man; Dr. Daniel Wil- 
son, Prehistoric Man, dealing chiefly with natives of Amer- 
ica ; Reports of the Bureau of Ethnology, connected with the 
Smithsonian Institution, Washington; Morgan, Ancient So- 
ciety; Taylor, Anthropology, particularly chapters ix to xi; 
Sir Henry Maine, Ancient Law, Tillage Communities in the 
East and West, Early History of Institutions, and Early Law 
and Custom, especially chapter viii in the last-named book; 
Mackenzie Wallace, Russia, for a popular account of the vil- 
lage community; Stepniak, Russia Under the Tsars, espe- 
cially the first chapter; Thorold Eogers, Work and Wages, 
for aspects of English progress during the last six centuries; 
Toynbee, Industrial Revolution, for an admirable treatment 
of recent changes; RancJ, Selections Illustrating Economic 
History Since the Seven Years' War, which gives a his- 
tory of the modern period in the form of original docu- 
mentary material ; Ashley, Introduction to English Econom- 
ic History and Theory; Cunningham, Growth of Industry; 
II. de B. Gibbins, Industry in England; and John A. Hob- 
son, Evolution of Modern Capitalism, which is especially to 
be commended to the general reader. Some general economic 
treatises in English contain parts which deal inadequately 



Economic Stages 41 

with the subject-matter of this chapter, as, for example, the 
Preliminary Eemarks of John Stuart Mill's Political Econo- 
my, and chapter vii of Book I of Marshall's Economics of In- 
dustry. German literature is rich in works dealing with the 
evolution of economic life. Perhaps no brief sketch is better 
than Schonberg, Volkswirthschaft, which serves as the first 
monograph in the Handbuch der Politischen Oekonomie, 
edited by him. The present author has derived more from 
Schonberg for Part I of this work than from any other source. 
Knies has treated the subject admirably in his work, Politische 
Oekonomie vom geschichtlichen Standpunkte. These works 
have unfortunately never been translated. An important sketch 
of economic development has been given by the able pro- 
tectionist, Frederick List, in his book Das Nationale System 
der Politischen Oekonomie. Two translations of this work 
exist : an early one by G. A. Matile, which appeared in the year 
1856, and a later one by Sampson S. Lloyd, M. P., which ap- 
peared in the year 1885. M. de Laveleye's work on Primitive 
Property traces the evolution of property, especially in land. 



42 An Introduction to Political Economy 



CHAPTER VI 

THE PRESENT STATUS OF ECONOMIC SOCIETY AND OF ECONOMIC 

PROBLEMS 

Economic Problems not Local. — We have reached the high- 
est stage of economic life that has ever been attained by man, 
and yet there were never so many economic questions pressing 
for solution as at present. No nation is peculiarly situated 
in this respect, though narrow ignorance in each nation as- 
sumes that discontent in that particular land is without foun- 
dation. It is particularly noticeable that there is a very gen- 
eral tendency among the people in modern countries to ascribe 
discontent to the agitation of foreigners. The truth is, how- 
ever, that the general features of industrial society are similar 
in all modern countries. It is therefore rather in the nature 
of industrial society itself that we must look for the causes of 
the existence of pressing economic questions. What are these 
causes ? 

1. The Industrial Revolution. — We must first notice the 
fact that far-reaching changes in the socio-economic life of 
nations have recently taken place, and that these have suc- 
ceeded one another with surprising and unprecedented rapid- 
ity. These changes have been brought about by advances 
in science and art acting through discoveries and inventions. 
So rapid have been the changes of the past century that it is 
customary to speak of them in a body as constituting what is 
called the industrial revolution. Our space is so limited 
that it is impossible to dwell long on the remarkable features 
of this recent development. Let the reader, however, call to 
mind the many things in our economic life which the world 
never saw before. He will, of course, think at once of the 
railway #nd of steam navigation, and of other applications of 
steam to industry? But these have brought about other im- 



The Present Status of Economic Society 43 

portant new phenomena. The concentration of large masses 
of working-people in great factories of which they themselves 
own no part, and under a single employer, is something new 
in the case of skilled mechanics. We do not mean that noth- 
ing of the kind has ever existed before, but that the phenome- 
non is so much more common and affects so many more people 
that in its social aspects it is new. In the last century, and 
for centuries before, artisans generally owned the tools which 
they used, and, after they had fully mastered their trades, 
usually called no man master, but worked in their own little 
shops. Even within the memory of the author this condition 
of things has become much less common. The smith under the 
spreading tree, of whom Longfellow sang, is disappearing. 
He is leaving the crossroads in his little village and will soon 
be at work in a machine-shop. His friends, the carpenter and 
the shoemaker, are accompanying him. A few artisans may 
stay to do repairing and other small work, but the cheaper 
processes of vast establishments have rendered migration 
for the many inevitable. Only the few among artisans can 
live in the old style. Few villages are keeping pace with the 
increase of the country's population. Articles formerly made 
in small villages are now manufactured in large cities, near by 
or remote. Thus even houses are sometimes constructed in 
large establishments, and are sent to small places where it is 
only necessary to put them together. Merchants have also been 
obliged to leave the villages, where they were owners of inde- 
pendent establishments, to seek employment in immense city 
retail and wholesale shops, because the railways have carried 
their customers away from them. The amount of production 
increases continually, but the number of separate producing 
establishments decreases just as steadily. Dr. Albert Shaw, 
editor of the American monthly Review of Reviews, presents 
a good illustration of this concentration in the milling business 
in the following quotation from an article by him in the Chau- 
tauquan for October, 1887: "The completion of the great 
mills has caused the abandonment and decay of hundreds 
of the picturesque, old-fashioned neighborhood mills. In 



44 An Introduction to Political Economy 

1870, according to the census of that year, there were 
in the entire country 22,573 grist mills, 58,448 hands, 
representing $151,500,000 of capital, and making a product 
worth $444,900,000. In 1880 the number of establishments 
was 24,338, the number of hands, 58,407, the capital invested, 
$177,300,000, and the value of the product was $505,100,000. 
(The price of flour had declined ten per cent in this decade.) 
The increase shown in the number of establishments ... is 
more apparent than real, the great bulk of the flour having 
been made in a decidedly smaller number of mills in 1880 
than in 1870. Since 1880 the blighting effect of the great 
merchant mills upon the small establishments has become 
visible to everyone. According to the Miller's Directory 
for 1884, . . . there were at that time some 22,940 mills in 
the country, a decline of 1,398 from the census figures of 
1880. . . . From 1884 to 1886 . . . the number of milling 
establishments has declined to 16,856, . . . a loss in two 
years of more than twenty-six per cent." 

The United States census for 1890 shows that the same 
concentration marked the decade following 1880. In 1890, 
according to the government figures, the number of establish- 
ments had fallen to 18,470, a further decrease within the dec- 
ade of about twenty-five per cent ; the number of employees had 
risen to 63,481, an increase of about eight per cent ; the capital 
invested had risen to $208,473,500, an increase of over seven- 
teen per cent; and the value of the product had risen to 
$513,971,474 in spite of a constant fall in the value of the 
raw material. 

Eeferring to these figures, The Nortlnvestem Miller in its 
issue of May 11, 1894, made the following interesting com- 
ments: "The story of the decade in milling which closed in 
1890, as told by the census report, is exceptionally interesting, 
for it shows the effect of improved machinery, condensation 
of effort, economy of manufacture, increase of capacity, and 
enlargement of markets, when worked out to a legitimate end. 
It may also foreshadow the future to those wise enough and 
broad enough to grasp its lesson. The result is, first, the 



The Present Status of Economic Society 45 

wiping out of existence of nearly 6,000 mills, and, presumably 
the same number of millowners. These 6,000 withdrew from 
the combat on the introduction of new machinery and the 
growth of new methods. These could not stand the test and 
surrendered their places to those who survived them. Twenty- 
five per cent of the contestants for supremacy laid down their 
arms to circumstances which they were powerless to overcome. 
The remainder, presumably the 'fittest/ at any rate, the sur- 
vivors, occupied the field, under the new rules of warfare, with 
new methods of fighting. These, at the next day of reckon- 
ing, the next milepost, stand accredited with owning over 
$30,000,000 more capital, employing 5,000 more men, paying 
out over $10,000,000 more for wages, and manufacturing 
property valued at nearly $9,000,000 more, although the cost 
of the material was over $7,000,000 less. The world has thus 
gained, for the loss of the 6,000 individual concerns, more flour, 
at a less price, and the milling trade itself has progressed, 
in the immensity of its invested capital, in the value of its 
product, and in the number of its workmen, while the wages 
of the latter have been increased from an average of about 
$300 per annum to one of about $425, nearly fifty per cent." 

It would be interesting to compare these statements and 
figures with the results disclosed by the twelfth census, but 
such a comparison must be left to the readers, as the govern- 
ment statistics for 1900 are not yet accessible. In the absence 
of such definite information, it is of interest to note the opinion 
of an expert in the milling business. In a recent letter, Mr. W. 
C. Edgar, manager of The Northwestern Miller, writes : 

"In our opinion the concentration which marked the decade 
between 1880 and 1890 has continued during the last ten years 
at probably even a greater ratio than before. Everything in- 
dicates that the number of small mills in the country has 
enormously decreased, while the capacities of the larger mills 
have greatly increased. It is impossible to tell what propor- 
tion of the general output emanates from the large milling 
centers. 

"The number of mills in the South has undoubtedly con- 



46 An Introduction to Political Economy 

tinued to decrease more rapidly than elsewhere, for the reason 
that the South is no longer to be considered, with the exception 
of a very few states, as a wheat producer, and where wheat is 
not produced there is not apt to be a growth of the milling 
trade. North Carolina, for instance, while credited in 1880 
with 1,300 mills, really did not have any flour mills at all, as 
we understand flour mills. In fact, we do not know of a 
single modern flour mill in North Carolina, although there are 
perhaps fifty or sixty mills in that state all told, which grind 
wheat into flour. Most of the mills put down in Southern 
states as flour mills are either engaged in the manufacture of 
corn goods, or they are rude and primitive feed mills, which in 
this part of the country would not be called flour mills at all. 
... I inclose herewith an article* published by The North- 
western Miller on the milling industry in the United States 
as shown by the census of 1890. You will note the conclu- 
sions which are drawn from this showing, and substantially 
they stand good to-day. In short, there is no doubt whatever 
that the manufacture of flour is becoming more and more the 
work of the large mills of the milling centers and in the mill- 
ing states, and less and less that of the isolated mill in the 
country. This is made possible by the enormous increase in 
transportation facilities, the reduction in freights, and the 
facility with which the large manufacturer penetrates with his 
product into the most obscure towns and villages of the coun- 
try, sending his flour from the centers throughout the most 
remote localities." 

Readers can readily gather from census and trade reports 
many similar illustrations of this concentration of business, 
which is one of the main causes of the existence of present 
economic problems. Self -employment and the employment of 
others become constantly more difficult, and the number who 
succeed in escaping the condition of employees is relatively 
diminishing with the progress of industry. A few escape from 
the ranks to become "self-made men," as we say ; that is, great 
and wealthy employers of hundreds or even thousands of 

* Vide supra. 



The Present Status of Economic Society 47 

workingmen ; but they are the exceptions, and must be, so long 
as present industrial movements continue. Thrift, frugality, 
and temperance on the part of the masses cannot alter this in 
the slightest degree. One who excels may rise to industrial 
power, but his superiority would cease should others emulate 
his qualities. This fact, which is as simple as multiplication 
and division, is becoming very generally recognized, and the 
recognition is producing a widespread restlessness and un- 
easiness. Many perceive that they can never escape from the 
lot of workingmen, and that the only way to improve their 
condition is to elevate their entire class. The solidarity of all 
interests is therefore coming to be felt as never before. 

Corporations and "Trusts." — The study of corporations re- 
veals another aspect of the industrial revolution. They now 
control a large proportion of the wealth of the world and count 
their employees by the million; yet we find Adam Smith in 
1776 gravely arguing in his Wealth of Nations that as a rule 
corporations cannot succeed. At that time the prediction had 
in it nothing of the strangeness that occurs to us as we read it 
to-day, for there were then few examples of successful corpora- 
tions. In fact, Smith could find no examples outside of the 
business of banking, insurance, "making and maintaining a 
navigable cut or canal/' 1 and "bringing water for the supply of 
a great city." If you would discover the contrast between that 
day and this, look through the columns of any recent paper 
devoted chiefly to manufacturing interests, and you will find 
that the names of more than half the establishments show 
clearly that they are corporate concerns. 

A further distinct and most remarkable advance upon the 
concentration which has marked the entire century has been 
made within the last two decades, particularly in the United 
States. Before, small industries were being grouped to make 
large ones. In this last stage of concentration the large in- 
dustries have combined into national associations which, 
from one occurrence in the history of the movement, have 
been called "Trusts." The occurrence to which reference is 
made grew out of attempts on the part of companies controll- 



48 An Introduction to Political Economy 

ing the larger part of a staple product of the United States 
to secure greater unity of action and an assurance of the co- 
operation of the participating companies. They finally hit 
upon the expedient of adopting the legal forms of trusteeship, 
the individual companies placing their business in the hands 
of trustees appointed by themselves. Since legislators, who 
failed to look below mere surface phenomena, outlawed this 
sort of trusteeship, the corporations which have desired closer 
unity have found other modes of union. To-day such com- 
binations exist in various forms, and, in several lines of pro- 
duction, the number of active plants, the output of the indi- 
vidual plant, the field of distribution of the product, and a 
thousand and one other details of the business are definitely 
determined. Just as corporations are combinations of indi- 
viduals, the so-called trusts are generally combinations of 
corporations into still larger corporations. The distinction 
between the two is apparent, and yet they are both a natural 
development from existing legal and industrial conditions. 

Besides these companies formed from the combination of 
lesser companies, there also exist various associations of com- 
panies, whose bond is more or less close. With some the reg- 
ulation is almost as minute and strict as is the case with the 
so-called Trusts, while with others the independence of action 
of the several companies is but little impaired by the "agree- 
ment" or "pool." 

Banks. — The increase in the number of banks, until to-day 
they are found in almost every town in the civilized world, 
is another evidence of the industrial revolution. The business 
of our time could not be carried on without banks. The fail- 
ure of a few of the larger ones in financial centers like New 
York and Boston is sufficient to cause a widespread panic, in 
which London, Berlin, and Paris are deeply involved. 

Commerce, domestic and international, has undergone a 
marvelous change since the day — only a little more than a 
century ago — when Adam Smith assured English farmers that 
even with free trade they need never fear any considerable 
importation of wheat and beef from Ireland, on account of the 



The Present Status of Economic Society 49 

expensiveness of transportation ! On the one hand commerce 
no longer ministers chiefly to luxurious living, as formerly, 
but rather furnishes the necessities of life; and on the other 
hand it intensifies international competition. The question 
of the tariff assumes a new importance under the conditions 
of modern commerce. 

On account of cheap transportation, free immigration of 
foreign laborers has become a thing of unprecedented magni- 
tude. So great has been the influx of foreign labor into the 
United States, and so many were the abuses of ignorant labor 
by mercenary and unscrupulous employers, that a federal law 
has been passed to prevent the importation of labor under 
contract. The labor market is soon to embrace the world. 

Problem of the Working Day. — This industrial revolution 
is, on the whole, in the direction of progress, but it has come 
so suddenly that it has forced upon us problems which will not 
be readily or quickly solved. Take, as an instance, the ques- 
tion of the eight-hour day, which has become a live question 
because, on the one hand, machinery enables us to produce 
more in eight hours than formerly in three times eight hours, 
and because, on the other hand, those engaged in great fac- 
tories find modern production more wearing on the nervous 
system, more insidiously tempting them to the use of intox- 
icating stimulants, frequently more deadening to the intellect, 
and requiring, in consequence, more leisure for recreation and 
the development of the higher faculties. It can hardly be dis- 
puted that if all able-bodied members of society in that part 
of the world which we commonly speak of as civilized, worked, 
either with body or mind, enough could be produced in eight 
hours per day to satisfy the legitimate want of every human 
being within the confines of civilization. These facts must 
not be taken as a conclusive argument in favor of the eight- 
hour day for those engaged in manufactures — manifestly the 
case of agricultural laborers is different in some particulars — 
but they do show what has made the eight-hour day a live 
question. 

Resistance to Improvements. — These changes in produc- 



50 An Introduction to Political Economy 

tion and in distribution, in domestic and international com- 
merce, have been followed by an almost infinite variety of 
new phenomena, some of them welcome, others unpleasant, 
distressing, and dangerous to the social structure. The 
changes mean displacement of labor and capital, and every 
extensive displacement of labor and capital is, at least for the 
time being, painful. If it be said that "in the long run" such 
changes are beneficial to all, it may be replied that men's lives 
do not last for "the long run." As Mr. Edwin Cannan puts 
it in his Elementary Political Economy, "The short run, if 
the expression may be Used, is often quite long enough to 
make the difference between a happy and a miserable life." 
New inventions which render former skill of no account are 
extremely painful to skilled laborers and their families, who 
see their industrial and social station thereby lowered. Im- 
provements have, it is true, often been resisted foolishly, but 
artisans have in this respect shown only common human traits. 
Lawyers have as strenuousty, and far more successfully, re- 
sisted reforms which would have diminished. their fees. 

Sudden Riches. — The abuse of freedom on the part of those 
who are at the same time strong and unscrupulous has been a 
fruitful cause of trouble. There has been an unusually nu- 
merous class of these, because manifold changes have sud- 
denly enriched poor people, and often by mere chance, as in 
the case of owners of oil lands, natural gas lands, and farm 
lands where cities have sprung up. Now it is a great strain 
upon a man's nature to subject him to the temptations in- 
volved in new and sudden acquisitions of material power, and 
inferior natures have not been able to endure it. Parvenus 
and those whom the French call nouveaux riches have given a 
demoralizing example of soulless, materialistic luxury, and 
other inferior natures have tried, according to their means, to 
ape them in their extravagance. Thus has arisen a race in 
display which has promoted speculation, fraud, and embezzle- 
ment. Probably also the hardest employers, those who have 
most aggravated social troubles, are to be found among these 
same new-rich. 



The Present Status of Economic Society 51 

Confusion of Private and Public Business. — The improper 
extension of private activity to public spheres, as in the case 
of gas supply, electric service of all kinds, and railways, may 
be mentioned as a fruitful cause of social problems. Vast 
increase of wealth has stimulated egoism, and as everyone 
has been bent on his own concerns, few have stopped to inquire 
into the proper lines to be drawn between public and private 
enterprises. Mistakes easily made are only with great diffi- 
culty remedied. The railway and the steamship have brought 
us many good things; but they have brought much evil with 
the good, and are the cause of perplexing problems. The 
domination of public interests by private corporations, and 
the seizure of public property by them without just compensa- 
tion, are a further cause of uneasiness and anxiety. 

For the relations which exist in modern society, for all these 
new and heretofore unknown conditions, we require new laws, 
new institutions, and new ideals in legislation. 

2. The New Importance of Capital. — One recent develop- 
ment may, on account of its special significance, be profitably 
singled out for more particular treatment. This development 
is the new force which has come to be indicated by the word 
capital, and which is brought out still more clearly in the ex- 
pression "capitalistic production." It is in part this new 
force which has created modern socialism. Of course capital 
in some form has existed from our earliest civilization, 
since capital means simply an accumulation of products 
of past toil to be used for purposes of further production. 
But as a separate, distinct, and mighty force, capital as it 
exists to-day is something new. Capital is the point about 
which social discussion largely turns, and the phrase "capital 
and labor" is, in one connection or another, continually on 
everybody's lips. Yet it is said that the rallying cries for and 
against capital would not have been even understood in the 
Middle Ages. It may be asked, "How can this be?" Let us 
see. The truth is that no one attacks capital in itself, and 
no sensible man deems it necessary to defend the existence 
of capital in itself. The socialist, who leads a crusade against 



52 An Introduction to Political Economy 

"capital," is as much in favor of the use of capital as anyone 
else. Socialists wish even to extend the use of capital. But 
capital, accumulations of past toil in the shape of food, shel- 
ter, clothing, and particularly tools and implements, like rail- 
ways, steam-engines of all kinds, telegraph and electric plants, 
while it marvelously increases the production of goods, has 
become a disintegrating force. Differentiation has accom- 
panied industrial development. It is the present capitalistic 
mode of production, therefore, which is called in question. 
The capital is very commonly owned by one class, while the la- 
bor is furnished by another class. Now, as we have two distinct 
classes in production, disputes over the division of goods pro- 
duced by these two classes are certain to arise. The finished 
product being given, the more one class receives the less re- 
mains for the other, and it is mere sophistry to claim that the 
interests of the two can be perfectly identical. The diversity 
of interests which manifests itself in very real industrial con- 
flicts is an inevitable part of that system which assigns labor 
to one class and capital to another. We have already ex- 
plained that in earlier times this separation did not exist. Such 
separation has in past centuries been obviated by a succession 
of contrivances, which in their time were natural institu- 
tions. Slavery, which united in the same hands labor 
and capital, was followed by serfdom, which, in its manner 
of allying the interests of employer and employed, is closely 
akin to slavery. Craft-guilds were another mode of ob- 
viating the excessive antagonism of labor and capital. Manu- 
factures were carried on in the Middle Ages by labor and 
capital organized together in these guilds, which, during 
their best period, achieved satisfactory results in general har- 
mony. There was, as a regular practice, a gradual progression 
from apprentice to journeyman and from journeyman to 
master owning his tools, and all grades worked together. The 
apprentice lived with the master, and frequently, after pass- 
ing through the grade of journeyman and presenting his 
masterpiece, married the master's daughter. The very word 
manufacturer, a hundred years ago, had its true etymological 



The Present Status of Economic Society 53 

meaning — a man who makes things with his own hands. Adam 
Smith speaks about growing rich by employing a multitude 
of manufacturers, by which he means simply skilled artisans. 
Custom has also been a powerful factor in maintaining indus- 
trial peace in the previous centuries of the world's history. 
Custom regulated prices and wages, and was often so fixed and 
settled that it was taken as something almost as much a matter 
of course as are the laws of the physical universe. 

Plans for Uniting Labor and Capital. — We have already 
seen that in the earliest economic stages nature is the domi- 
nant factor, while labor is a minor factor, and capital, ex- 
cept in the most rudimentar}^ form, does not exist. As in- 
dustrial civilization gradually develops, the power of man as 
seen in labor gradually gains a greater and greater ascend- 
ency over wild nature. Labor is assisted by those tools and 
implements which are always connected with it, and which are 
scarcely thought of as existing apart from labor. Labor in 
this stage is the pivotal point of production. Time passes. 
Tools and implements are evolved that are a thousandfold 
more efficient than those of older centuries, but at the same 
time a thousandfold more costly. What formerly required a 
year for its doing is now done in a day; but for this many 
must work together, and great wealth must own the tools. 
Those helps in production which are represented by capital 
are no longer mere appendages to labor and subordinate to 
labor. They now become dominant, and when they become 
most powerful they are owned by a distinct class, the capital- 
ists. Capital thus follows labor as the pivotal point of pro- 
duction, and because it is a separate force it gives rise to 
trouble. It pulls men apart and divides them into sharply 
defined classes. It is this phenomenon that explains the 
socialist definition of capital. "A negro," says Carl Marx, 
the great German leader of socialism — "a negro is a negro. 
In certain relations he becomes a slave. A cotton-spinning 
machine is a machine for spinning cotton. It becomes capital 
only in certain relations. Capital is a social relation existing 

in the processes of production. It is an historical relation. 
5 



54 An Introduction to Political Economy 

The means of production are not capital when they are the 
property of the immediate producer. They become capital 
only under conditions under which they serve at the same time 
as the means of exploiting and ruling the laborer." That is 
to say, Marx limits capital to economic goods in the hands of 
employers at a time when these goods, accumulated by past 
toil, have assumed an importance never before known in the 
world's history. Questions of production on a large scale and 
on a small scale turn on relative efficiency of capital under 
various forms of organization. The great problem of the 
future organization of industrial forces centers in questions 
connected with capital. The old methods of production have 
gone never to return. How shall the benefits of the old be 
united with the advantages of the new? There is a wide- 
spread belief that labor and capital must again be united, but 
when the question of method is raised differences of opinion at 
once arise. Many believe that the problem can be solved along 
existing lines by savings banks, building associations, and the 
acquisition by laborers of shares in the corporations which 
employ them. Others hold that special efforts should be 
made to induce laborers to put their small savings together 
and to acquire capital to employ themselves. Let us say, for 
instance, that a thousand dollars capital is required for each 
laborer in a certain kind of business ; then a thousand laborers 
would require one million dollars ; a very large sum, but when 
the amount is divided into a thousand parts, the case by no 
means appears hopeless. This is what is meant by cooperation 
as ordinarily understood — the supply of capital by laborers 
who are to manage their own business, or, at least, to select 
their own managers. Still others, who do not believe that the 
obstacles in the way of self-management can be overcome, look 
to a voluntary sharing of profits by employers with their em- 
ployees, a method which has been successfully adopted by 
many capitalists, and which to some extent unites the inter- 
ests of labor and capital. Another very large class of re- 
formers, who do not believe that joint ownership of capital 
can ever be brought about by voluntary agreement, look to the 



The Present Status of Economic Society 55 

power of government to establish this. These are the so- 
cialists. Various reforms will be discussed at length here- 
after. It will be seen, however, that all the projects that 
have been mentioned turn upon discussions of capital, and 
that all those who advocate these projects desire to make the 
laborer at the same time a capitalist. It is trusted that this 
discussion has made clear the significance of the statement 
that capital has become a new force. 

3. Possibility of Improvement.— Economic science has 
shown us the possibility of better things for the masses, and 
we cannot, therefore, rest quiet with things as they are. Such 
quiescence or acquiescence is impossible, and if it be possible, 
it is nevertheless sinful. Our responsibility for the condi- 
tions that have been mentioned is something which we feel in 
spite of ourselves. We may deny it ; we may ask indignantly, 
"Am I my brother's keeper ?" But deep down in our hearts 
and consciences we feel this responsibility, and even while we 
are denying it we show by our acts and by our conversation 
that we feel it. 

4. Higher Ethical Standards. — A fourth cause of social 
problems, which is clearly related to the third, is the progress 
of religion — in particular of Christianity — and the develop- 
ment of humane sentiments in all classes. Things trouble us 
now which one hundred years ago we would have taken as a 
mere matter of course. The contradiction between our social 
reality — things as they are — and our social ideal is painful. 

Some passages from Sir Henry Maine's Village Communi- 
ties will help us to understand the significance of the progress 
of Christianity. He is seeking an explanation for the fact that 
what he regards as economic principles are not universally re- 
ceived. By economic principles he means self-seeking in 
economic matters — asking the highest price obtainable for 
salable commodities and purchasing commodities at the lowest 
price, or buying in the cheapest and selling in the dearest mar- 
ket. Sir Henry Maine evidently approves of self-interest as 
a supreme factor, but he notices that a moral feeling common 
in mankind rebels against what he styles, and what are errone- 



56 An Introduction to Political Economy 

ously supposed to be, economic principles. The explanation of 
the reluctance with which self-interest is accepted as a su- 
preme guide is historical. The "market" was originally neu- 
tral ground lying where "the dominion of two or three villages 
converged." These villages were communities, in which cus- 
tom rather than competition regulated prices, but to the "mar- 
ket" all went as strangers, and for the "market" the idea of 
"sharp practice and hard bargaining" obtained. "Here, it 
seems to me," says Sir Henry Maine, "the notion of a man's 
right to get the best price for his wares took its rise, and hence 
it spread over the world." Then, after commenting further 
on the growth of "market law," he illustrates as follows the 
survival of older ideals: "The repeal of the usury laws has 
made it lawful to take any rate of interest for money, yet the 
taking of usurious interest is not thought to be respectable, 
and our courts of equity have evidently great difficulty in 
bringing themselves to a complete recognition of the new prin- 
ciple. Bearing this example in mind, you may not think it an 
idle question if I ask, What is the real origin of the feeling 
that it is not creditable to drive a hard bargain with a near 
relative or friend? It can hardly be said that there is any 
rule of morality to forbid it. The feeling seems to me to bear 
the traces of the old notion that men united in natural groups 
do not deal with one another on principles of trade. . . . The 
general proposition which is the basis of political economy 
made its first approach to truth under the only circumstances 
which admitted of men meeting at arm's length, not as mem- 
bers of the same group, but as strangers. ... If the notion of 
getting the best price for movable property has only crept to 
reception by insensible steps, it is all but certain that the idea 
of taking the highest obtainable rent for land is relatively of 
very modern origin. The rent of land corresponds to the 
price of goods, but doubtless was infinitely slower in conform- 
ing to economical law, since the impression of a brotherhood 
in the ownership of land still survived when goods had long 
since become the subject of individual property. So strong 
is the presumption against the existence of competitive rents 



The Present Status of Economic Society 57 

in a country peopled by village communities that it would re- 
quire the very clearest evidence to convince me that they were 
anywhere found under native conditions of society. ... It is 
notorious that in England, at least, land is not universally 
rack-rented." (Rack-rent, it should be explained, is simply 
a technical English term for competitive rent.) "But where 
is it that the theoretical right is not exercised? It is sub- 
stantially true that, where the manorial groups substituted for 
the old village groups survive, there are no rack-rents. What 
is sometimes called the feudal feeling has much in common 
with the old feeling of brotherhood which forbade hard bar- 
gains." 

Let us now endeavor to understand the significance of these 
qualifications. 

Political economy is supposed by some to be the science of 
"sharp practice and hard bargaining." It is held to assume 
the existence of sharp practice and hard bargaining and to 
justify both, as, on the whole, Sir Henry Maine does. Yet we 
see that these so-called economic principles could arise only 
when men met as strangers, and that even up to the present 
time they are incompatible with the feeling of brotherhood. 
We may be assured as often as one pleases that it is creditable 
to "drive a hard bargain with a near relative or a friend," but 
it is of no avail. There is within man an ethical feeling — 
a feeling that has grown up as a result of historical experience, 
and that has been clarified and intensified by religion — which 
tells us that in our economic life as well as elsewhere we must 
seek to promote the welfare of our neighbor and brother. This 
ethical feeling is not to be lightly regarded, for it is the best 
product of centuries of striving on the part of the best men. 
Now Sir Henry Maine looks to a disappearance of this feeling 
of brotherhood to make way for the triumph of the "market," 
where only sharp practice and hard bargaining obtain. It 
may be that the first effects of modern improvements in the 
means of communication and transportation have been to de- 
stroy or rather greatly to weaken the feeling of brotherhood, 
and old local groups have doubtless in consequence been 



58 An Introduction to Political Economy 

broken up and their members scattered. It has become easy 
to wander off to any quarter of the world. But still further 
improvements in the means of communication and transporta- 
tion — especially, perhaps, the national and international post- 
al systems — are drawing all parts of the world closer together 
than ever before, and the fraternal feeling, instead of being 
limited to a local group of brothers to whom all strangers 
are aliens, is extending and embracing all men. With an ex- 
tension of fraternalism there is at first a great weakening of 
the ethical feeling to which we have referred, for it 
is noticeable that in phenomena, generally, a widening 
of the extent is accompanied by a lessening of the in- 
tent. It is as* if a river were to have its channel suddenly 
widened. The stream would be broader, but not as deep. But 
economic bands and the progress of Christianity, which 
teaches that all men are brothers, are rapidly strengthening 
the fraternal feeling throughout the wider Christian family 
which modern progress tends to make a unity in economic in- 
terests. An economic world-union of brothers is in the process 
of formation. It is this that explains a large part of our anxiety 
and uneasiness with respect to social conditions. It is of no 
avail to say that business is excluded from the domination of 
ethical principles, for it is precisely in our economic life that 
ethical principles of any real validity must manifest them- 
selves. Ethics and economics cannot be thus separated. In 
other words, the last word of ethics must be as applicable to 
men in their economic activity as in any other of their fields 
of conduct. It is conceivable that the older ethics is itself at 
fault — that the ethical principles which the ages have evolved 
were themselves only relative to their time, and are now bound 
under a new order of things to give way to a new ethics of 
"sharp practices and hard bargaining." We have said that this 
is conceivable. It is more than conceivable ; it is even a neces- 
sary hypothesis for those who would be consistent in their op- 
position to the application of the older ethics in modern 
business. For ethics and economics cannot be built up on 
contradictory data. Let who will frame a new ethics. For 



The Present Status of Economic Society 59 

the great majority of mankind the ethical teachings of Christ 
must continue to be the true basis of conduct in the economic 
and political as in the narrower social life. And, weighed in 
such a balance, much so-called economic and political practice 
will be found sadly wanting. It is only in an imperfect con- 
dition of society that sharp practice and hard bargaining can 
ever appear to men to be morally right. There is a very 
general determination to make all departments of social life 
conform to ethical principles, and this is what is meant by the 
phrase used by the Christian, "The world is the subject of 
redemption." 

Absolute and Relative Deterioration of the Masses. — We 
have examined certain general causes for the existence of 
socio-economic problems. Accompanying each of these a 
multitude of forces is at work aggravating or mitigating 
troubles. A deterioration in the economic situation of the 
masses may be either or both of two kinds. It may be abso- 
lute or relative. Absolute deterioration means conditions 
poorer in themselves without regard to the economic situation 
of others or the changed requirements of new times. Abso- 
lute deterioration is the exception, but still it is not so uncom- 
mon as is generally supposed. Changes involving displace- 
ments of labor and capital injure large numbers, and of these 
many never regain their old position. Economic evils when 
of a certain magnitude tend to increase spontaneously, as it 
were, and to aggravate themselves. Children are not edu- 
cated, there is a falling back to a lower physical, social, and 
moral standard of life, and progress ceases. This absolute 
deterioration has, during the last fifty years, been exceptional, 
though not so in earlier ages, and we have no warrant for the 
hypothesis that in the future it will not again become common, 
unless special efforts are made to prevent it. 

A relative deterioration is far commoner. This means that 
large sections of the population have not kept pace in their 
economic progress, on the one hand, with the advance of wealth 
and, on the other, with the development of their rational 
wants and aspirations, to say nothing of the craving for mere 



60 An Introduction to Political Economy 

luxuries which has been stimulated by the lavish expenditures 
of the rich, especially of the new-rich. We are here concerned 
with the higher demands of people, and, provided these take 
a right direction, they are to be welcomed, for they are a 
condition of civilization. Missionaries among degraded 
heathen find it necessary to awaken wants, even if for mere 
ornament, in order to incite the savages to action, which is 
always the first step in progress. Every succeeding step in 
civilization is accompanied by new wants. Unless these are 
awakened civilization comes to a standstill, as can be seen 
among portions of the Canadian French in the Province of 
Quebec, Canada. ' Professor Drummond speaks of the few 
wants of the Africans as an obstacle in the way of the develop- 
ment of their country. 

Wants and Civilization. — What has just been said has an 
intimate bearing on many present problems in the United 
States. We do not desire among us a people with few wants 
and no aspirations. Such a population can serve only as a 
drag on the progress of American civilization. At the same 
time not all wants are legitimate or desirable. As has been 
explained, wants are infinitely various through a regular scale 
of progression, and as man advances material wants ought to 
give way to those of a higher social, mental, and spiritual 
nature. There is in the United States to-day a dangerous 
tendency toward materialism, or the placing of material satis- 
faction too high, to the neglect or forgetting of any higher 
wants of man's nature. The proper task of the intelligent 
and interested citizen and statesman is not to try to check the 
growth of wants, but rather to direct the current into proper 
channels. 



Literature. — Baker, Monopolies and the People; Ely, Mo- 
nopolies and Trusts; Jenks, Trust Problem; Proceedings of 
the Chicago Conference on Trusts. 



Features of the Economy of the Modern Nation 61 



CHAPTER VII 

SOME GENERAL FEATURES OF THE ECONOMY OF THE MODERN 

NATION 

Three characteristic features of modern economic life are 
to be found, in the relations which it bears (I.) to freedom, 
(II.) to ethics, and (III.) to the State. These will be ex- 
amined briefly in the order named. 

I. Freedom. — Freedom must be regarded as merely relative. 
It has been absolute only in that condition of anarchy in which 
savages had lived previously to organized government. A re- 
introduction of absolute liberty would mean a return to primi- 
tive anarchy, and any idea of realizing it is absolutely chimer- 
ical. Such freedom as exists is relative. Legal restrictions 
are exceptional ; in particular, such legal restrictions as are 
felt to be burdensome, because, as Sir Henry Maine has shown, 
obedience to law is in civilized nations mostly unconscious. 
Law has to such an extent formed us, and is to such an extent, 
on the other hand, an expression of our universal wish that we 
for the most part spontaneously obey it. We cannot move 
without law. It is a condition of the existence of modern 
civilization. Law makes it possible for us to live our lives in 
security. Do we own a house? That implies law. Do we 
go to business every day in a street car ? The construction of 
street-car lines is always made possible by laws. Do we read 
telegrams ? We can do so only because law has made possible 
the existence of telegraph companies. Do we send and re- 
ceive letters? It is through an institution which is the crea- 
ture of law, owned and operated by the government. But, 
after all, this is not felt to be a limitation of freedom. In- 
deed, it is only in this state that freedom can be realized. Yet 
nearly all laws carry with them a "Thou shalt" and a "Thou 
shalt not." Restrictions which do exist are now, almost with- 



62 An Introduction to Political Economy 

out exception, general, or, in other words, are in the interest 
of the whole people, not of a few privileged individuals or 
classes. Their aim, as a whole, is to prevent an abuse of lib- 
erty; to keep the strong and cunning from injuring others, 
and thus to increase real liberty. 

Restrictive Laws May Increase Real Freedom. — The way in 
which restrictive laws often increase real freedom may be illus- 
trated by an occurrence in Baltimore. The barbers of that 
city wished to close the barber shops on Sunday. One barber 
could not close his shop unless all did the same, as he would be 
likely to lose regular customers. A voluntary agreement was 
not felt to be sufficient security for Sunday observance. The 
barbers accordingly raised several hundred dollars to secure 
the passage of an ordinance compelling them to close their own 
shops. They were successful, and thus were enabled by the 
law to carry out their own desires. They were enabled to do 
what they pleased, and thus restrictive legislation increased 
freedom. The barbers of another city of the author's acquaint- 
ance have not been so fortunate. With a single exception, 
they have all desired early closing and no Sunday work. The 
solitary exception, however, has been able to prevent effectual 
effort on the part of the others. The writer has frequently 
heard a photographer in New York, who used to do business 
on Sunday, lament grievously the necessity for Sunday labor, 
and express a willingness to contribute one hundred dollars 
to secure the passage of a law closing all photograph galleries 
on that day. It is thus seen that restrictions upon liberty 
may arise outside the law, and that the law may increase lib- 
erty by helping us to remove these restrictions. This prob- 
lem of raising the plane of competition, of changing it to the 
equal benefit of all, but against the opposition of a minority 
element, the author has called the "problem of the twentieth 
man." There is probably not a city in the country in which 
barbers and many others would not change their hours and 
methods if they could be sure that all would take the same 
stand. Efforts are very commonly made, with more or less 
success, at early closing in stores. We may readily believe, 



Features of the Economy of the Modern Nation 63 

therefore, that in all such places statutory regulation, well en- 
forced, would simply confirm the efforts of the most intelli- 
gent and most just employers. 

Increase in Government Regulations. — We speak con- 
tinually of the increase of freedom, and imagine often that we 
have been moving in the direction of no-government. It is 
probable, however, that laws were never more numerous or 
more far-reaching in their consequences than to-day. Let us 
take as an illustration the law under which national banks are 
organized. We consider that law an excellent one, and never 
speak of it as an infringement of liberty. Yet every step in 
the life of a national banking establishment is taken accord- 
ing to law. The amount of capital is prescribed, the manner 
of investment of a part of the capital is rigidly defined, and 
the investment of the whole of it is limited, the size of each 
share is prescribed, the amount which must be paid in is pre- 
scribed, the offices are prescribed, the voting power of shares 
is prescribed. After the bank comes into being it is ordered 
to publish a minute statement of its condition in the local 
press five times a year, and four of these times without previ- 
ous warning, and examiners may without warning be sent 
from Washington to inspect its books. In contrast with all 
this we find a great lack of any legal restriction in the case of 
previous banking systems, as they existed in the first half of 
the century. It is necessary to examine into these phenomena. 
It may be said that the laws are now neither less numerous nor 
less powerful than formerly, but wiser and in many cases 
more numerous and more powerful. As a rule, they construct 
a framework within which we willingly move. 

Laws no Longer Special, but General. — Laws formerly were 
often special and not general, and aroused animosity because 
they did not bear on all alike. The laws formerly authorized 
one to do what another was expressly forbidden to do. A 
might follow the trade of a carpenter, while B was excluded. 
C might establish a bank, but D would be thrown into prison 
if he attempted to do the same. Laws of the last century and 
of previous centuries were frequently individual or special in 



64 An Introduction to Political Economy 

their application and became oppressive. Banks serve again 
as an illustration of this fact. Early in this century, in all of 
the states of the American Union, it was necessary for any 
body of men desiring to engage in the banking business to se- 
cure a special legislative charter. Now any body of men who 
comply with the laws for the formation of banking institu- 
tions may organize a bank. The restrictions contained in the 
laws are of a severity that would not have been tolerated fifty 
years ago, but they bear on all alike ; they are framed in the 
interest of the people as a whole, and are not felt to be op- 
pressive. To repeat, then, we may say that laws have not been 
abolished, but that in a great part of the industrial field ex- 
clusive privileges have been swept away. 

It is well in this connection to reflect on the real nature of 
freedom. In a positive sense freedom is intelligent obedience 
to wise law, but frequently, perhaps even commonly,. it signi- 
fies mere absence of restraint upon our actions, and is thus 
negative. It may be compared to an empty vessel. Its value 
depends upon what we put into it. Absence of restraint can 
hardly be called a good in itself. It may be a curse, or it may 
be a blessing. It gives opportunity for the development of 
our faculties to a full and harmonious whole ; yet, if we are not 
ripe for such self-governing as would be made necessary, it 
may involve our degradation. Children are not fit for it, and 
their development can better be secured under the controlling 
influence of a higher authority. Not all nations are fit for it. 
The Declaration of Independence was the assertion before the 
world that we were fit for free and uncontrolled self-develop- 
ment. American democracy means the ripeness of Americans 
for political freedom. 

Legal freedom, in its economic aspects, manifests itself in 
five different ways : 

1. Freedom of Labor in three respects. In the first place, 
we should note freedom of person, as seen in the abolition of 
bondage and the establishment of the principle of legal equal- 
ity. This freedom of the person has become universal in the 
civilized world only within the present generation. In the 



Features of the Economy of the Modern Nation 65 

second place, we must notice the freedom of labor with respect 
to movement and acquisition. This means the right to settle 
where you please and to follow any pursuit you please, so far 
as any special and individual legal restrictions are concerned. 
Legal restrictions of a general nature, framed in the interests 
of the public welfare, exist everywhere, and they are, on the 
whole, continually increasing in severity. A decision of the 
Supreme Court of the United States has declared that they 
violate no provision of the Federal Constitution. Some of 
these restrictions, such as those imposed upon persons who 
engage in certain occupations like banking, have been men- 
tioned. To engage in any one of many kinds of business it is 
necessary to comply with certain prescribed rules and regula- 
tions. The business of a plumber in many states is an ex- 
ample. In other countries the requirements in the case of 
apothecaries or druggists are severe, and they are becoming 
increasingly so in all our states. Professional pursuits, like 
the practice of law and medicine, serve as further examples. 
During the Middle Ages it was necessary to belong to some 
guild, or trade corporation, to engage in any one of the lead- 
ing industrial occupations, and these associations regulated, 
generally under legal supervision, the conditions under which 
business should be followed. 

The Freedom of Movement for working people has become 
general over the civilized world only within the present cen- 
tury. It did not exist in England when Adam Smith wrote 
his Wealth of Nations. It is interesting to note that restric- 
tions on the freedom of movement arose in connection with 
the laws for the relief of the poor. Each parish was anxious 
to avoid the care of the poor of other parishes, and many 
parishes even endeavored to escape their fair burdens by send^ 
ing away their poor to be supported by other parishes. Con- 
sequently it was provided that a workingman, before he was 
allowed to settle, should be required to demonstrate his ability 
to support himself without help from the parish, or that he 
should bring from his former parish authorities certificates 
by which they bound themselves to become responsible for his 



66 An Introduction to Political Economy 

maintenance and for his removal to his former home should 
he become a public charge. These requirements were so diffi- 
cult of fulfillment that they kept a large part of the laboring 
population stationary in the parishes of their birth. These 
laws regulating residence were called laws of settlement. Of 
the one in England Adam Smith goes so far as to say : "There 
is scarce a poor man in England, of forty years of age, I will 
venture to say, who has not in some part of his life felt him- 
self most cruelly oppressed by this ill-contrived law of settle- 
ments." 

"Tramp Laws." — It is well to notice recent revivals of re- 
strictions on the freedom of movement of wage-earners. The 
abuses of this freedom in this country have led in many of our 
states to the passage of "tramp laws," which provide for the 
imprisonment of a man who wanders about the country with- 
out financial resources. Such a person is called a vagabond, 
and in some cases may be punished by more than a year's im- 
prisonment in a penitentiary. In Georgia and some other 
Southern states he is put in the chain-gang, and compelled 
to work for the state. There can be no doubt that the 
public has suffered severely from vagabonds, and that 
women in rural districts have been insulted and even as- 
saulted by unprincipled tramps. Property has been de- 
stroyed and stolen by them. Incendiarism has in many in- 
stances been traced to them. The European laws of settle- 
ments grew out of efforts to correct real evils, and in pre- 
cisely the same manner we are erecting barriers against free- 
dom of movement without, perhaps, appreciating their full 
significance. While the evils inflicted in portions of the 
country have been intolerable, we should in matters like this 
proceed with caution. 

Many workingmen in America claim that they have been 
cruelly oppressed by tramp laws ; that they have been misused 
and even imprisoned while seeking an opportunity to gain an 
honest livelihood. There can be no doubt that innocent poor 
people have suffered under these laws. Workingmen have felt 
this so keenly as to demand in some of the platforms of their 



Features of the Economy of the Modern Nation 67 

political parties the abolition of all tramp laws. Such a step 
is undoubtedly too radical. Labor organizations, in some 
instances, have in a measure remedied the evils of these laws 
and encouraged the free movement of labor by providing funds 
for traveling members out of work. Moreover, labor papers 
and labor organizations help to keep workingmen informed of 
places where work may be procured, and thus still further 
promote the free movement of labor. 

Foreign Immigration. — New limitations on the freedom of 
international movements of workingmen are noteworthy. The 
anti-Chinese legislation of the United States and Australia is 
designed to keep from these countries cheap foreign laborers, 
and is the most marked example of this recent revival of an- 
cient restrictions. The United States law which forbids 
Americans making contracts with foreign laborers to come to 
this country to work is another example. Efforts are being 
made still further to restrict free international movements of 
working people. 

The freedom of contract with respect to labor is the third 
form in which the freedom of labor manifests itself. This 
means the legal equality of employers and employees in labor 
contracts. In a general way it may be said to date from the 
French Revolution, although it was not universally introduced 
in civilized countries until much later. Adam Smith and the 
men of his day expected from it certain beneficent results 
which have been at best only partly realized. Philosophers of 
the latter part of the eighteenth century assumed the natural 
equality of all men, and held that oppressive inequalities were 
the result of legal institutions. It has become evident, how- 
ever, that their assumptions were not valid. Economic in- 
equalities place the ordinary employer in a very different posi- 
tion from the ordinary employee, and thus the natural ten- 
dency is for the industrially strong to show their superiority in 
free labor contracts. The industrially strong in all countries 
are consequently ardent champions of the freedom of the labor 
contract. Workingmen attempt to equalize conditions pre- 
liminary to the arrangements of labor contracts by the forma- 



68 An Introduction to Political Economy 

tion of labor organizations, in order that, as capital speaks 
solidly through one representative, as, for example, the presi- 
dent of a street railway company, labor may also present itself 
as a nnit through some chosen leader. 

Restrictions on Labor. — The freedom of the labor contract 
exists nominally in countries like France, Germany, England; 
and the United States. Everywhere, however, there will be 
found restrictions on the right of combinations of laborers to 
make their own bargains in their own way, to work or to refuse 
to work, to select their own companions during work, and the 
like. The effect of recent judicial decisions in the United 
States has been still further to restrict the freedom of the labor 
contract where organizations are concerned, and to-day such 
freedom is more limited in the United States than in Eng- 
land, though probably not more so than in France, Germany, 
or Italy. With England leading the movement in Europe^ 
and Massachusetts at the head of it in the United States, there 
has been a further notable limitation on doctrinarian freedom 
of contract in the matter of number of hours of work, employ- 
ment of women and children, and in other matters of a like 
nature. These restrictions are wisely based on a correction of 
the old a 'priori assumption of natural equality among men. 
As yet courts and legislators are very chary about admitting 
such restrictions in the case of labor contracts between adult 
males, because, in their view, the grades of actual inequality 
are so numerous and so narrowly separated one from another 
that in most cases it would as yet seem impracticable to draw 
the line by statute. 

2. Freedom of Landed Property. — By the expression free- 
dom of landed property is meant the right to buy and sell 
landed property without legal restrictions. This again is a 
new right, and it is not fully recognized in England even to- 
day, where a great deal of the land is entailed. It was in- 
troduced in Prussia early in this century by the reforms of 
the statesmen Stein and Hardenberg. In England the right 
is often called "free trade in land." In our country it does 
not exist with respect to lands granted by act of Congress to 



Features of the Economy of the Modern Nation 69 

Indians, which are inalienable for twenty-five years. Among 
the Jews it was not known. Jehovah was the one in whom the 
title to their land was vested, and the usufruct was granted 
to families who could part with it only temporarily, it being 
always returned to them in the year of jubilee. In this connec- 
tion it is instructive to read the Mosaic legislation with respect 
to land. There are those who think that our century has yet 
much to learn from Moses. Many, in fact, are dissatisfied 
with existing land laws, and think that free trade in land as 
now known does a vast amount of needless harm, and is a rob- 
bing of the masses for the benefit of the few. This opinion 
is not shared by the majority of the best thinkers on socio- 
economic topics. There is, however, a widespread feeling that 
land laws ought to be amended more or less, without, in the 
main, changing the fundamental principles on which they 
rest. 

3. The Freedom of Capital with Respect to Loans. — By the 
expression freedom of capital with respect to loans is meant 
the abolition of prohibitions on the receipt of interest and of 
restrictions on the rate of interest. The Mosaic legislation 
prohibited all interest; for, it must be understood, usury in 
older literature means not merely excessive interest, but any 
interest at all. Moses allowed the taking of interest from 
strangers, although in certain special cases it was unlawful to 
take it even from them. The greatest philosophers and states- 
men of classical antiquity, and of the Christian era until mod- 
ern times, have been opposed to the taking of interest, and the 
laws have reflected more or less perfectly their views. Eecent 
opinion has favored interest as ethically justifiable. The 
practice of receiving interest is now so nearly universal that a 
man like the late John Ruskin, who habitually made loans 
without interest, is regarded as very peculiar, if not erratic. 
But the rate of interest is still generally regulated and 
limited by statute. In England any rate of interest is legal, 
but restrictions exist in nearly or quite all other countries. 
Such restrictions for a time were abolished in Germany, but 
were reestablished on account of abuses of the freedom. 



70 An Introduction to Political Economy 

Even then, however, no fixed limit was placed on lawful in- 
terest, but the judges have been given a wide discretion to de- 
termine what is, under the circumstances of the particular 
case, excessive, and therefore usurious, interest. 

Eestrictions on the rate of interest on loans exist in most of 
the states and territories of the American Union, there be- 
ing very few states in which no limit to the rate of interest is 
fixed or where penalties for usury are not provided. 

4. Freedom in the Establishment of Enterprises. — The 
right of single individuals to establish enterprises on comply- 
ing with general regulations is of a far more ancient date than 
the right of combinations of individuals to engage in indus- 
trial undertakings. These combinations of individuals usually 
take the form of joint-stock companies, generally called in 
the United States corporations. The right of free establish- 
ment of corporate enterprises on compliance with provisions 
of general laws is a new right, only a little more than a gen- 
eration old. It did not exist in England until 1855. In 
some of our American states it dates from an earlier period, 
while in others it is of later origin. In Germany it did 
not exist until after the formation of the empire in 1871. 
Formerly a special law was required to enable a body of 
men to associate themselves for productive purposes, es- 
pecially if the liability of the associates was limited. The 
older idea in the United States and elsewhere was that 
combinations of capital equally with combinations of labor 
were dangerous; but there was this difference, that special 
laws were passed from time to time authorizing the forma- 
tion of associations of capitalists, while no such laws were 
ever passed in the case of laborers. Each fresh applica- 
tion for a charter of incorporation was presumed to be ex- 
amined on its merits. If a body of men desired to form a 
bank, the legislature was supposed to examine into their finan- 
cial and moral fitness for the enterprise, perhaps also into the 
need for such an enterprise, and to grant a charter only when 
all the conditions of the contemplated undertaking were satis- 
factory. Such a system of special charters never worked well, 



Features of the Economy of the Modern Nation 71 

and it has worked especially ill in more modern times. With 
the best will in the world — and the best will was often wanting 
— legislatures found that the task transcended their powers. 
Bribery on an immense scale was frequently resorted to, and 
charters were also made a part of the system of political spoils. 
Thus early in the present century it was considered an unwar- 
rantable presumption for the Democrats in New York state 
to expect a bank charter when the Federalists were in office, 
and when the Democrats were in office the Federalists fared 
no better. It was only by stratagem that Aaron Burr could 
secure a bank charter when his political opponents were in 
power in New York. He obtained a charter for a water com- 
pany, one clause of which, innocent enough at first glance, 
really gave the company power to engage in the banking busi- 
ness. The system of special charters has for the most part 
been abandoned, and in some parts of the industrial field is 
being still further limited. Conditions are severer and more 
far-reaching than formerly, but are general in their applica- 
tion. 

Exceptions to the Rule of Freedom of Establishment of 
Enterprises. — Important exceptions to the modern rule must 
be noticed. The right to supply certain services to cities, such 
as light, water, and the transportation of passengers by street- 
car lines and elevated railways, is secured by special charter, 
act, or ordinance, and often an explicit monopoly is granted 
with what must in the nature of the case be an actual monop- 
oly. All of the evils connected with the old general system of 
special charters are connected with special privileges granted 
to parties to engage in these enterprises, and many evils which 
did not exist under the old charters obtain in the new. Indeed, 
such charters are in one way or another connected with most 
of the evils of municipal politics. As free competition is im- 
possible in the case of electric lighting, gas, water, and street- 
car, and elevated railway service, it has seemed to many that 
the only way to correct these evils is to abolish the corpora- 
tions engaged in such undertakings. This can be done only by 
turning over these services to the municipalities themselves. 



72 An Introduction to Political Economy 

A remarkable movement in this direction has already begun, 
and the results thus far experienced have been beneficial. 
Water supply, fortunately, is nearly everywhere in the com- 
plete control of cities. Gas works are usually owned by the 
municipalities in Germany, and quite largely and to an in- 
creasing extent in England. The gas consumed m American 
cities, on the contrary, is usually supplied by private corpora- 
tions. But there is every reason to expect an increase in the 
number of cities owning and operating gas works. Electric 
lighting plants are often owned by cities, and English laws 
look to the ultimate acquisition of all private establishments 
in this field. There are in the United States to-day over four 
hundred places that own and operate electric lighting plants, 
and many of them supply the lighting not only for public 
purposes, but for private use as well. The latter is ordinarily 
called commercial lighting. There are certain difficulties in 
the way of comparing the economic efficiency of the service as 
rendered by the municipalities and the service as rendered by 
private corporations. In recent years the matter of charging 
among costs the items of depreciation, interest, insurance, etc., 
has been insisted upon by opponents of municipalization of the 
electric lighting service. But making all proper allowance 
for these items, the balance clearly inclines to the side of 
municipalization. Corrected figures and careful investiga- 
tion show that the municipal service in public lighting is 
cheaper and better than that supplied by private companies, 
though it is well understood that private corporations charge 
a higher rate for private than for public lighting. In the case 
of commercial lighting the advantage is even more strikingly 
in favor of municipal ownership. Eates charged to private 
consumers range from fifty to one hundred per cent lower 
than those exacted by private companies. 

New limitations on freedom to engage in railway enter- 
prises are now being enacted in the United States, while the 
freedom of enterprise in this field has in other countries been 
abolished for some time. In Massachusetts those who may 
desire to build a new railway must show that there is a public 



Features of the Economy of the Modern Nation 73 

need for the undertaking, and a similar law has been passed 
within the last decade by New York state. This restriction 
prevents a great deal of waste by doing away with the con- 
struction of parallel and other useless lines of railways, but as 
it adds to the value of existing railway property by removing 
possible rivals, it would seem only proper that the railways 
should be made to pay, in the form of taxes on gross revenues 
or otherwise, for the special privileges they enjoy in such abo- 
lition of freedom in the establishment of railway enterprises. 
Indeed, such a step should never be taken until public control 
over these enterprises has been established on the firmest basis. 

It may, perhaps, be laid down as a general rule, although a 
rule admitting of exceptions under the stress of conditions of 
time and place, that when for any class of business it becomes 
necessary to abandon the principle of freedom in the estab- 
lishment of enterprises, this business should be entirely turned 
over to the government, either local, state, or federal, accord- 
ing to the nature of the undertaking. 

5. Freedom of the Market. — The expression freedom of the 
market means the right to buy and sell where one pleases. 
This is another new right and, indeed, is one which is 
recognized only with qualifications. We accept this prin- 
ciple in the United States with respect to domestic trade, 
but not with respect to foreign commerce, on which we lay 
heavy taxes for the express purpose of restricting it. But re- 
strictions even on domestic trade were the rule rather than 
the exception in the last century, not only in the American 
states, but in Europe. Our Federal Constitution of 1789 
established in the United States the principle of freedom of 
domestic trade, and reforms accompanying or following the 
French Eevolution led to its general establishment elsewhere. 
England went a step further by abandoning the policy of 
restricting foreign commerce in 1846, and it was then 
expected by free-traders — as those are called who believe in 
the principle of freedom — that other nations would speedily 
follow her example. Those anticipations have not been 
realized; on the contrary, new restrictions have since then, 



74 An Introduction to Political Economy 

especially in recent years, been established, and old restric- 
tions sharpened. 

The cause has been the policy of protection, which will be 
discussed hereafter. Protection achieved a great triumph in 
the abandonment of free-trade principles and the establish- 
ment of a high tariff by Germany in 1879. The battle be- 
tween the two policies has been vigorously waged in the United 
States during the last two decades, with the result of some 
modifications — including the feature of reciprocity — but 
without a decided victory at the hands of the people for either 
policy. The question still awaits settlement. 

Advantages of Competition. — The advantages of general 
freedom of the market are more talked about than are the dis- 
advantages, and they are consequently better understood. 
Under the system of freedom, capital and labor tend to flow to 
places where they are most needed, and that is generally where 
they are most productive. The absence of restrictions spurs 
the industrially gifted to activity in enterprises, since the re- 
wards of success are enormous. Competition develops new 
forces and reveals new resources of economy, excellence, and 
variety of products. The modern man, like the modern trot- 
ter, has been developed on the race course. Everyone must be 
active and alert or suffer loss. As a result of competition 
progress in technical processes has been rapid, and the forma- 
tion of new enterprises has been encouraged. 

Disadvantages of Competition. — When we come to speak of 
the disadvantages of the modern system of freedom — that is to 
say, of competition — it at once occurs to us that the moral at- 
mosphere of a race course, under existing conditions, is not by 
any means in every way a wholesome one. Competition, if 
unregulated, tends to force the level of economic life down to 
the moral standard of the worst men who can sustain them- 
selves in the business community. Long hours, child labor, 
and labor of married women in stores, in factories, and even 
in mines underground, are all brought about in a similar 
manner. Cheap prices must be met by cheap prices. A ten- 
dency to reduce wages is likewise explained. On the other 



Features of the Economy of the Modern Nation 75 

hand, it must be acknowledged that when the industrial sit- 
uation favors labor, competition is apt to raise wages, es- 
pecially where well-managed labor combinations exist. More- 
over, quality often suffers in this race for cheapness. So seri- 
ous has the evil of adulteration become that many, even of 
those who have stood as strong advocates of noninterference, 
admit the necessity of preventive action in this regard. Cheap 
imitations, often bearing the name of the goods which they 
are made to resemble, are every day being offered in competi- 
tion with the goods of honest producers. Thus not only the 
people themselves are injured as consumers, often paying 
high prices for things which are shoddy or even harmful to 
health, but even legitimate producers themselves are injured 
by the conscienceless competition of their rivals. 

Remedies for the Evils of Economic Freedom. — We are not 
helpless in the face of those economic evils which are con- 
nected with freedom. Combinations of interested parties — 
workingmen in their labor organizations, capitalists in their 
chambers of commerce, merchants' and manufacturers' asso- 
ciations — can set themselves against the evils under which we 
suffer, some of the worst of these evils can be corrected by 
laws, and thus the moral level of competition can be raised. 
Sunday work serves as an example. Another illustration is 
that of laws directed against the employment in factories of 
children under a certain age. The agitation against adulter- 
ation serves also to illustrate the possibility of changing the 
level of competition without destroying the competition itself. 
A recent United States Senate commission to investigate food 
adulteration found the opinion everywhere expressed that hon- 
est competition could only be effected by government interfer- 
ence, which should require goods to be sold in every case for 
what they are. Many states have already taken up this matter 
of adulteration, and the result is a body of laws, generally 
known as pure food laws. Perhaps one of the most striking 
instances of dishonest competition that were revealed before 
the Senate committee was that in the making of champagne. 
It was shown that the greater part of the American product 



76 An Introduction to Political Economy 

is prepared by mechanical and chemical processes, which re- 
quire but a short time, while the genuine champagne, whether 
American or foreign, requires a natural process of ripening, 
which necessitates leaving the wine in deep cellars for three 
or four years, and also requires an immense amount of skilled 
hand labor. Manufacturers of the genuine champagne did 
not ask that the sale of the cheaply manufactured substitute 
should be stopped, but urged only that the exact nature of 
the wine should be indicated in the label upon the bottle con- 
taining it. 

Within the past few years an association known as the 
Consumers' League has been formed, with the object of 
raising the moral plane of competition. Members of the 
league seek to effect their object by purchasing only from 
those merchants or manufacturers who have given satisfactory 
evidence that proper sanitary and economic conditions have 
surrounded the production of the goods. These laws, when 
uniformly enforced by factory inspectors and other suitable 
agencies, do not destroy competition. Those who were formerly 
rivals are still rivals— are still left to compete with each other 
— but under altered conditions which apply alike to all. The 
moral plane or level of competition has been raised. 

A great deal can be accomplished, not by resisting powerful 
economic currents, such as the tendency of production to con- 
centration, but rather by guiding and directing the currents 
in such a manner as to secure the maximum of benefit with a 
minimum of injury. It has been laid down as a general rule 
by an English writer that experience has demonstrated two 
things: the advantages of freedom in trade and commerce; 
the necessity of restrictions in the field of labor and in behalf 
of labor. 

II. Ethics and the Economic Life of Nations. — It is recog- 
nized now that there should be no contradiction between 
ethics and economic life, and that ethics demands a truly 
civilized life for each individual — demands that as far 
as possible each should be so supplied with economic or ma- 
terial goods as to satisfy all his reasonable wants and: to. 



Features of the Economy of the Modern Nation 77 

give opportunity for the completest development of all his 
faculties. It demands, further, that the production of goods 
should be so conducted as to minister to the advancement of 
society in general as well as to the advancement of the pro- 
ducers. In this respect, as in so many others, there has been a 
return, on the part of political economy, to older and sounder 
conceptions. We have gone back to the Greeks, notably to 
Plato and Aristotle, who subordinated all economic inquiries 
to ethical considerations. They never asked merely, "How can 
a nation become wealthy?" but "How can. the economic in- 
stitutions and arrangements of a nation be so ordered that the 
highest welfare of all citizens may be best promoted ?" This 
mode of thought was common, it is scarcely too much to say, 
to all great writers on socio-economic and political topics until 
in the last century a wave of revolutionary materialism swept 
over the world, since which time there has been an effort so to 
divorce ethics and economics as practically to subordinate 
ethics to economics. The higher social life-spheres have been 
asked to minister to the lower, the feet have been exalted above 
the head, and in parliaments and legislatures men discuss so- 
cial questions in such a way as to show that the main thing in 
their minds is the greatest possible wealth-creation, and that 
in their view humanitarian considerations — they often call 
them sentimentalism — ought to bend before considerations 
of increased production. Even to secure appropriations for 
public schools it is frequently necessary to show that popular 
enlightenment will add to the productive powers of the com- 
munity, or will help to protect wealth against depredations ; 
and anything so far removed from the lowest material con- 
siderations as art or music is in most cases considered an im- 
proper field for the fostering care of government. 

Ideals for Economic Progress. — Happily, as has just been 
said, there seems to be a revival of truer conceptions, and there 
is a tendency to go back to the best thought of earlier periods. 
Several economists have presented high social ideals to which 
economic life should, so far as may be, minister. They all 
point to the same goal, which may be thus expressed: Let sp : 



78 An Introduction to Political Economy 

ciety seek for itself the largest resources and the largest in- 
come, never forgetting the supreme importance of so framing 
the industrial mechanism as to distribute the income and the 
resources in a manner that will guarantee to every member, 
so far as possible, a material basis for the complete and har- 
monious development of all his faculties. 

III. Economic life and the State. — The third and last 
feature of economic life that we shall discuss is its relation to 
the state. 

When John Stuart Mill attempted to enumerate and clas- 
sify the existing functions of the modern state he found only 
one thing common to them all — public expediency. These 
are his words: "The admitted functions of government em- 
brace a much wider field than can easily be included within 
the ring-fence of any restrictive definition, and ... it is 
hardly possible to find any ground of justification common to 
them all, except the comprehensive one of general expedi- 
ency." 

Utility the Criterion of State Action. — In the very nature 
of things, there is no reason why the state should do one thing 
rather than another except that the one is more useful than 
the other. If both activities are equally essential to the public 
welfare, there is as much reason and justice in state construc- 
tion and state operation of steam railways as in state punish- 
ment of crime. There is great confusion of thought on this 
subject, to which it will be necessary to recur again in later 
pages. But it may be asked, Whence the source of the author- 
ity of the state to do anything at all ? There is an ancient the- 
ory according to which it is assumed that all citizens have 
entered into contractual relations with one another and have 
thus established government. It can scarcely be necessary to 
discuss this fiction at present, so generally has it been dis- 
carded by thinkers. Sometimes the writing which the Pilgrim 
fathers signed on the Mayflower in 1620, establishing civil 
government, is adduced as an illustration of a contract origin 
of government. But the Pilgrim fathers then originated no 
new government. Indeed, the declaration began in these 



Features of the Economy of the Modern Nation 79 

words : "In the name of God, Amen. We whose names are 
underwritten, the loyal subjects of our dread sovereign King 
James." They were already living under a government — 
that of England— to which for over a century they and their 
successors professed loyal allegiance. They did not claim 
to establish a new sovereignty. Even had they done so 
— even were we to do the impossible and accept the con- 
tract theory of government as rational and historical — 
is a contract once signed to bind men forever? Are 
the living to be slaves of the dead ? Great political thinkers, 
like John Stuart Mill of England and Bluntschli of Heidel- 
berg, say that the validity of contracts of a governmental na- 
ture — treaties, for example — should be limited to one genera- 
tion. But, if a contract be signed, whence comes the authority 
of the parties to sign a contract binding themselves and others 
to maintain and obey government? The creature thus be- 
comes superior to the creator, and may call on the creator to 
lay down his life, or may even take it against his will. But it 
is needless to give further consideration to this absurdity. 
Even were contract the origin of government, how could it 
be shown that government would have any right to do one 
thing more than another except on grounds of expediency? 
What other indications of the nature of this absurd contract 
have we than the laws, including the written constitutions, 
where such instruments exist? But, if these give us the na- 
ture of the contract, would not then the functions of govern- 
ment change with changes in such laws and constitutions? 

When utility is regarded as the justification of government 
the whole cause of controversy falls away. To justify a thing 
needs simply to show that it is useful. If God is the source 
of authority and the justification of government — its ultimate 
ground — then let some one show any other limitations which 
He has established to the functions of government than are 
to be found in the limitations of expediency. 

Government and Democracy. — The modern conception of 
the state is that it is a cooperative community, differing from 
voluntary cooperative associations in its power of coercion. 



80 An Introduction to Political Economy 

The state is a coercive cooperative commonwealth. The peo- 
ple act through the state and its various subdivisions and 
minor civil divisions. "We, the people," establish through 
our federal government a post office. "We, the people/' do 
other things through our government of New York state, 
or Wisconsin, as the case may be. "We, the people/' do still 
other things through our agents, the municipal authorities of 
New York or Chicago. An older conception, inherited from 
European despotisms, pronounces all state action "paternal- 
ism/' but those who call such a thing as the establishment of 
gas works by a municipality "paternalism" have never grasped 
the fundamental idea of modern democracy, which is that 
government is not something apart from us and outside of us, 
but we ourselves. Government activity is no longer dreaded, 
as the influence of ideas disseminated by French revolutionary 
leaders caused it to be dreaded early in this century. It is 
rather to be looked upon as one of the most powerful factors 
in promoting civilization. 

Individual Enterprise also Necessary. — On the other hand, 
it is felt that the domination of any one principle in industrial 
life must be disastrous. Accordingly, outside of the field of 
governmental activity, we desire a field for the industrial ac- 
tivity of individuals and of voluntary combinations of in- 
dividuals in partnerships, cooperative associations, joint-stock 
corporations, and, some will say, for combinations of corpora- 
tions, as in the newest development of industrial organiza- 
tion, the so-called trust. 

Some of the Functions of Government. — The purpose of 
the state then is, in its broadest terms, to promote the welfare 
of the people. To give a more detailed statement, the pur- 
pose is to establish and regulate economic institutions, such 
as property and inheritance ; to separate public from private 
property; to protect persons and property; to establish the 
conditions of contract, and to enforce contracts under these 
conditions; to promote education, morals, science, and art; 
to guard the public health ; to administer charities ; to raise 
the level of competition by prohibiting those forms of it which 



Features of the Economy of the Modern Nation 81 

are disastrous; to bring about that management of natural 
monopolies which is most beneficial to the general public; 
and to guard certain permanent interests of the nation, 
such as the maintenance of a sufficient area of forests. 
These things private individuals cannot do at all, or cannot 
do as well as can the state, and it may be maintained without 
fear of successful contradiction that, in recognition of this, 
civilized nations are, to an ever-increasing degree, performing 
these functions. 

Forestry. — This is not the place for an exhaustive discus- 
sion of these several functions. Treatises on political science 
explain the reason why many of them should be performed. 
The expediency of other functions has already been explained, 
and more will be said about them in later chapters of this 
work. A few words, however, may be said in this place re- 
garding forestry. All governments are taking upon them- 
selves the ownership and management of forests. In our 
own country New York state is easily the leader in this mat- 
ter. Years ago that state acquired extensive areas of Adiron- 
dack forest lands, and has carefully guarded them, employing 
regular expert foresters in the work. Three years ago the 
state took a further important step by establishing a school of 
forestry in the Cornell University. Other states are slowly 
coming to adopt a similar plan of action. Bills have been 
brought before Congress which look to management of forests 
as a permanent function of our national government. Switz- 
erland, France, and Germany are increasing the area of gov- 
ernment forests. The reasons are very obvious. First of all, 
it may be said that rational forestry requires plans to be made 
for at least one hundred years in advance. Trees must 
be planted which are to be felled only at the expiration of that 
long period, for it requires that length of time for their full 
growth, and by allowing these trees to grow to full size, the 
amount of timber grown on a given area is at the maximum. 
It will be universally acknowledged that private individuals 
will not invest money from which they expect to receive no 
return for over a century. In the second place, forests ought 



82 An Introduction to 'Political Economy 

to be cultivated on a vast scale, on land especially adapted to 
forest culture. Land often good for nothing else, and certain 
great regions, like steep mountain sides and sources of 
streams, ought to be entirely covered with forests. Their 
climatic influence is generally believed to be important, and 
their leaves and undergrowth certainly prevent rainfall from 
rapidly rushing down mountain sides and deluging the coun- 
try below. Forests prevent a waste of soil. It is said that in 
some cases where forests have been rashly removed from moun- 
tain sides in Baden, Germany, and in Switzerland, it will take 
three hundred years to repair the damage, since new soil must 
be slowly formed again. But private individuals will not se- 
lect for forestry vast tracts of land thus properly situated. 
In America farmers have quite generally kept a few isolated 
acres in woodland, but this is not what is wanted. The land 
kept in trees is in many cases probably better adapted to some 
other use, and forests may not be needed at this particular 
point. A third reason exists in the fact that it requires highly 
trained scientific men to take care of a forest. For success in 
such work it is necessary to have a good secondary school ed- 
ucation, to follow a course for several years in a forestry acad- 
emy, and then to supplement all this by an apprenticeship of 
several years in practical work in forests. Only a state own- 
ing tens of thousands or hundreds of thousands of acres will 
train up and organize a properly qualified body of scientific 
foresters. The difference between a forest which grows wild 
and one which grows up under a proper system of culture is 
so great that the trained eye can detect the difference nearly as 
far as sight can reach. It is probably within the bounds of 
truth to say that it takes twice as much land to supply a given 
need when forests grow up of themselves as when a rational 
system of forest culture obtains. A fourth consideration is 
that when forests are cultivated in large tracts, as they should 
be, covering perhaps an entire mountain, very considerable 
quantities of game can be grown. Such game might easily be 
made to form an important element in the food of a people. 
Our old private system of forests in America results in an al- 



Features of the Economy of the Modern Nation 83 

most total loss of game in the settled parts of the country. 
Finally, although forests do not; as a rule, pay private in- 
dividuals — the profits of Belgian forests, for example, do not 
exceed, it is said, one per cent of their selling value — they 
do pay the people as a whole, on account of their generally 
beneficial effects. 

More might be said on this topic were not space too limited. 
Sufficient has been offered to the reader to make it manifest 
that such petty measures as some of our states are introduc- 
ing, like tax exemption for planting a few trees or covering 
even a few acres with trees, will never accomplish anything of 
economic significance. Even "arbor days" are of little ac- 
count save for their educational value; but on that account 
they should be encouraged. 

Public and Private Responsibilities. — The author has tried 
to make it plain that in general there is no limit to the right- 
ful activity of the State — the sovereign power — save its abil- 
ity to do good. Duty, function, is coextensive with power. 
The state is a moral person. It may be further said in gen- 
eral that the fundamental principle, the basis of the economic 
life of modern nations, is individual responsibility. Each 
grown person is by our theory of government expected to feel 
that the welfare of himself and of his family, if he has one, 
rests upon himself. For the attainment of certain ends, how- 
ever, he finds it advantageous to cooperate with his fellows 
through town, city, state, or federal government, and the per- 
formance of public duties as well as private duties is helpful 
in the development of the individual and of the race. The 
performance of the true functions of government tends to 
promote energy and self-reliance. 

By far the greater part of economic life — most of the field 
of agriculture, commerce, and manufactures — is left to indi- 
viduals and voluntary associations of individuals. Where 
mistakes have been made, and private parties have been al- 
lowed to encroach upon the functions of the state, these mis- 
takes cannot be corrected in a day. It requires long and 
patient work to remedy evils of this character. On the other 



84 An Introduction to Political Economy 

hand, it is always easy for the state to give up any industry 
and turn it over to private parties, when it is found desirable 
to do so. 



Literature. — H. C. Adams, Relation of the State to In- 
dustrial Action; W. Stanley Jevons, The State and Labor; 
Ely, Monopolies and Trusts; Bemis, Municipal Monopolies; 
the quarterly journal called Municipal Affairs. 



The Nature and Scope of Political Economy 85 



CHAPTER VIII 

THE NATURE AND SCOPE OF POLITICAL ECONOMY 

Derivation of the Term. — We have now surveyed the char- 
acteristics and growth of economic society, and are in a posi- 
tion to inquire more carefully into the nature of the science 
which deals with this society; namely, political economy. 
The name of the science is derived from three Greek words. 
The word economy is derived from okoc and vo\ioq ; olong in 
this case meaning household goods, and vouog meaning law, 
custom, or usage, government or regulation. The word political 
comes through the corresponding Greek adjective from tto/Uc, 
which means state as well as city; for in Greece cities were 
of such preponderating importance and influence in the states 
that the same word was used for both, just as on account of 
the relatively greater significance of the rural districts we 
have come to use the words land and country to note the entire 
state. Economy, then, means, etymologically, the regulation 
of the household, or housekeeping, and it can be used to desig- 
nate the science or art of housekeeping, although for this 
purpose a separate word like economics would really be better ; 
and political economy is the housekeeping of the state, or the 
management of the goods in or pertaining to the state, or of 
the goods of the citizens so far as they have any public sig- 
nificance, which happens whenever private economies enter 
into reciprocal relations. It means the economic life of the 
nation, and afterward the science of national housekeeping, 
although here again, if obstinate usage did not stand in the 
way, another expression, like political economics, would really 
be preferable. National housekeeping is likely to sound 
strange to English ears, but it is sanctioned by as high an au- 
thority as the late James Russell Lowell, and it seems desirable 
that it should become familiar. It is an expression full of 



86 An Introduction to Political Economy 

meaning, and if rightly understood contains in itself an ex- 
cellent definition of political economy. It corresponds to the 
German word VolTcsvArthscliaftslehre — Voile, nation, rroXig; 
wirthschaft, housekeeping, oiitog \ and lehre, science, vdfiog. 

Political Economy Defined. — We may define political econ- 
omy in the most general terms as the science which treats of 
man as a member of economic society. Like other branches 
of the social sciences, it deals with social relations ; hut these 
social relations which form the subject-matter of political 
economy are of an economic or industrial nature. Nearly all 
social phenomena have their economic aspects, so that it may 
at first appear that there is no limitation to political economy 
save the bounds of the social sciences as a whole. Such is not 
the case, however, for the limitation of political economy is 
found in its peculiar standpoint. This fact may be brought 
out by some such definition as the following: Political econ- 
omy is the science of those social phenomena to which the 
wealth-getting and wealth-using activities of man give rise. 
Social phenomena connected with the production and con- 
sumption of economic goods are the province of political econ- 
omy. The political economist deals with religious phenomena, 
with the social phenomena of art and literature, with urban 
sanitation, and with any number of similar subjects, but al- 
ways as in some way or another connected with the produc- 
tion and consumption of economic goods. The physician and 
economist will both discuss child labor and excessive hours of 
toil in overheated factories; but the specialty of each will be 
apparent in his utterances. Different classes of men who con- 
cern themselves with society do not treat of separate classes of 
social phenomena, but, treating of the same phenomena from 
various points of view, the labors of each supplement those of 
all the others. 

A more detailed definition of political economy is on some 
accounts desirable. We have just seen that the economic life- 
sphere is closely connected with all other social life-spheres, 
and is influenced by them. As a matter of fact, man's life 
in society is a unit, and every social life-sphere conditions all 



The Nature and Scope of Political Economy 87 

other social life-spheres. We must, therefore, in our com- 
plete definition include a recognition of man's social activities 
outside the economic sphere, in so far as they affect that 
sphere itself. We have, then, the following as our formal and 
complete definition of political economy : "Political economy is 
the science (a) which treats of those social phenomena to 
which the wealth-getting and wealth-using activity of man 
gives rise; and (b) which deals with all other branches of his 
life, in so far as they affect his social activity in this respect. 

It may be added that in modern societies a practical test of 
the connection of phenomena with economic considerations 
is the ordinary use of money expressions in measuring wants 
and satisfactions. 

Distinction Between Private and Political Economy. — Po- 
litical economy has a different sphere from that of domestic 
economy. Political economy considers social matters. It 
does not attempt to give directions for the acquisition of 
wealth by a single individual, but to inquire into the nature of 
those phenomena which appear when individuals in their 
efforts to gain a livelihood and in their employment of eco- 
nomic goods enter into relations with one another. In fact, 
it is with these relations that political economy is chiefly con- 
cerned, and it is in great measure because these intricate social 
relations have been of slow growth that the science of polit- 
ical economy came late into being. Moreover, the almost 
miraculous development of the complexity of such relations 
that has marked our own century furnishes the chief clew to 
an explanation of the absorbing interest which men of the 
present day find in the social sciences, and particularly in po- 
litical economy. It seeks to explain these phenomena both by 
mere description and by the discovery of the causal relations 
connecting them; and it aims to show how the true wel- 
fare of a nation may be promoted in the acquisition and em- 
ployment of economic goods. Technological treatises on agri- 
culture, mining, manufactures, electricity, show how an 
individual may enrich himself. This distinction must not be 
misunderstood. Technical sciences and political economy 



88 An Introduction to Political Economy 

both treat of society, and both treat of individuals, but the 
technical sciences subordinate the social standpoint while 
political economy subordinates the individual standpoint. 
Political economy, in seeking the welfare of society, must of 
course aim to promote the welfare of the great mass of indi- 
viduals and families in the nation and in the world, but that 
is something different from the welfare of a particular indi- 
vidual or even of the great mass of men at a given moment. 
Political economy looks at questions from the point of view 
of the general and permanent welfare. 

Political Economy Simpler than Private Economies. — It 
may be well in this place to make some of these points clearer 
by various illustrations. It might seem a far easier thing to 
tell how John Smith could secure his economic welfare than 
how the nation of which he is only one member may become 
prosperous, but such is not the case. Accidental and dis- 
turbing causes and individual peculiarities make it extremely 
difficult to formulate general principles for an individual pri- 
vate economy, but these irregular elements disappear when 
we observe a large mass of individual economies. Mortality 
serves as a good illustration of this difference in the possi- 
bility of prediction in the case of the individual as 'compared 
with the case of a large group of individuals. No one can say 
when John Smith will die. The chance element is so pro- 
nounced as to make prediction impossible. But when we are 
called upon to make calculations upon mortality among sev- 
eral millions of people at a given period in a given country 
it becomes a comparatively easy matter. Individual irregu-, 
larities become social regularities, and calculations for great 
masses of facts of this kind can be made with so great a de- 
gree of accuracy that vast business transactions like those 
connected with insurance can with safety be based upon them. 
In a nation we can count upon a regularly recurring number of 
inundations, droughts, and grasshopper plagues; of accidents 
to the persons of inhabitants, involving a diminution of labor 
power; of disease and death; even of theft, robbery, and other 
forms of wickedness, vice, and pauperism. We make allow- 



The Nature and Scope of Political Economy 89 

ances for all these wealth-annihilating factors, and conse- 
quently they do not disturb our generalizations. Given a 
country like the United States, with a fruitful soil and all 
other desirable physical properties; a population on the whole 
thrifty, industrious, temperate, moral, intelligent, and enter- 
prising; a tolerable government, whose laws are in the main 
obeyed — and we know to a certainty that the country, as a 
whole, must in time become very wealthy. In its economic 
life, moreover, things as they occur at the same time — that is 
to say, phenomena in their coexistence — are observed to fall 
into great classes which may be described and explained; and 
things as they occur one after the other — or phenomena in 
their succession or sequence — are likewise observed to occur 
in some kind of regular order, which also may be described 
and explained. 

Let us suppose that we seek to know how John Smith 
may acquire wealth. He follows sound principles, but dis- 
ease and death at an early stage of his career destroy all his 
property. It is not even necessary to suppose so extreme a 
case. The land of the country is on the whole fertile, but in 
some way or another, possibly by inheritance, John Smith may 
be the owner of a piece of poor land on which he is obliged 
to struggle for a bare subsistence. His farm may even be 
fertile, but an overflow of a river, such as has not been known 
for a century, sweeps away his cattle, buildings, and the year's 
produce, and cripples him industrially in so serious a man- 
ner that he never recovers from it. Instances like the fol- 
lowing have fallen under the author's observation. John 
Smith is a clever artisan, receives good wages, accumulates a 
small property, which he is induced by an unscrupulous man 
to exchange for worthless Western lands. He returns to work 
for his old employers and is compelled to begin life over again 
penniless. Others may, it is true, learn from his experience 
to be more suspicious of plausible men with Western lands, 
but John Smith has lost his accumulations. To repeat an 
expression which we have had occasion to use before, "in the 
long run," other John Smiths may be made wary by his ex- 



90 An Introduction to Political Economy 

ample, but our John Smith has only "a short run," and must 
suffer for that reason. These illustrations make clear the 
statement that it is far easier to say how a nation may become 
prosperous than to prescribe how a particular concrete indi- 
vidual may secure economic well-being. 

Private Welfare not Identical with Public Welfare. — 
Again, we have said that political economy seeks the welfare 
of society. The prosperity of individuals may be secured at 
the expense of society, for it by no means follows, as superficial 
writers have assumed, that he who gains wealth has added that 
amount of wealth to the total wealth of the country or of the 
world. Lotteries serve as one of the best illustrations of this 
fact. They are one of the most disastrous institutions, both 
as regards the economic welfare and the morals of a com- 
munity, that can afflict society. Large numbers in the indus- 
trial community, especially among the poorer classes, may be 
turned away from safe and remunerative investment of their 
small earnings to a feverish pursuit of chance gain. In such 
cases society as a whole loses, but proprietors of lotteries have 
been known to gain large fortunes. 

When American cities have given away valuable franchises 
for street-car lines, individuals have gained, but the people as 
a whole have lost. Baltimore street-car companies pay nine 
dollars out of every hundred they collect for the maintenance 
of public parks, in addition to state and city taxes. Un- 
scrupulous politicians, for reasons best known to themselves, 
but not difficult to divine, have desired to relieve these street- 
car companies of this very proper although inadequate pay- 
ment for valuable privileges enjoyed. Such a gift to the 
companies, if made, would add to the wealth of individuals, 
but would injure the people of Baltimore as a whole. 

Other countries, like France and Austria, have limited all 
charters for railways to periods of less than one hundred years, 
and have added the further condition that the entire property 
shall, at the expiration of the period, revert, without com- 
pensation, to the people in their organic capacity; that is to 
say, to the state. Our general principle of unlimited charters 



The Nature and Scope of Political Economy 91 

has enriched enormously a few individuals, but the rest of 
the country is correspondingly poorer. 

Political Economy Regards Permanent Interests. — The po- 
litical economist must have regard to permanent interests. 
He may call upon the present generation to make a sacrifice for 
future generations, as did the city of Heidelberg when it 
passed over to the system of "high forest-culture;" that is to 
say, when it decided to allow a large part of the extensive for- 
ests which it owns to stand until the trees had attained their 
full size, and that means, in some cases, one hundred 
twenty years. As has been explained, that policy is best for 
the permanent interests of the city and nation, but the city in 
adopting it put aside all prospect of financial return for sev- 
eral generations. 

Political Economy both a Static and a Dynamic Science. — 
Political economy embraces both the statics and dynamics of 
society. The one treats of the interrelations of existing eco- 
nomic phenomena, including their causal forces, and the other 
embraces a discussion of the progressive movements of eco- 
nomic society. The one considers existing society as it is; 
the other inquires how it has become what it is and what is 
the present tendency of its evolution. Statics treats of forces 
in a state of equilibrium; dynamics deals with changes and 
the law of changes, and with what John Stuart Mill calls 
their ultimate tendencies. 

It may be remarked in this place that one of the chief errors 
of the uninstructed, in the past as well as at the present, con- 
sists in the failure to regard political economy as a dynamic 
science at all ; and this has led to a false and dangerous view 
of society. It induces men to try to stop the growth of 
society — which is about as wise a process as to seal tightly the 
cover of a boiler of boiling water, and to try to prevent 
thereby the expansion of steam. Change we must have, the 
only question is, What shall be the nature of the change? 
Growth can be guided and directed by intelligence, or by what 
Professor Lester F. Ward, in his Dynamic Sociology, calls 
teleological social action. 



92 An Introduction to Political Economy 

Importance of Social Ideals in the Study of Political 
Economy. — This naturally leads to a further remark about 
the nature of economic opinions. At the outset of any 
earnest study of political economy we should make up our 
minds as to what we really desire for society. And in this 
respect let us be honest with ourselves. Do we regard all 
human beings as brothers, and have we a sincere longing for 
the welfare of all? Do we think that the earth and all the 
riches of art, science, literature, and industry are for all, to be 
enjoyed by all, so far as is practicable, in proportion to their 
real needs? Do we, in short, take the ethical view of political 
economy. Or do we, on the contrary, perhaps without a full 
consciousness of the fact, hold that some are born merely to 
subserve the gain of others ? Do we think that only some of 
us, and not all of us, have talents which we ought to improve ; 
that is, to develop in the most complete manner possible 
all faculties, physical, mental, moral, spiritual? Are we 
striving to protect ourselves, our friends, or our class in spe- 
cial privileges? As political economy has to do with what 
we desire — that is, as it is teleological — the one aim or the 
other will be felt in all economic discussions, and particularly 
in so far as they relate to practical measures. It is for this 
reason that political economists in all countries are necessarily 
divided into two more or less antagonistic groups, differing 
chiefly in practical aims, and — as that part of the subject is 
more concerned with such aims — in the dynamics of political 
economy. 

Ethical Aims an Essential Part of Economic Activity. — 
Political economy, then, distinctly includes within its prov- 
ince an aim. It does not tell us merely how things are, but 
also how they ought to be. Economists deal with human 
activities, and these activities must have a purpose. A pur- 
pose is not something accidental, but a true essential part of 
the activity. We may therefore compare various purposes at 
the present time and pronounce some praiseworthy and oth- 
ers reprehensible. We may speak of actual purposes and of 
desirable purposes. The development of economic life brings 



The Nature and Scope of Political Economy 93 

out clearly the significance of ethical aims in industrial so- 
ciety. What exists now as a mere matter of course was 
once only an ideal for the future, or, to use more technical 
language, the "Is" includes what was once the "Ought-to- 
be." The acquisition of material goods by robbery was for 
ages held to be legitimate, and the abolition of plunder as a 
source of individual gain could once, among savages, have 
been only an ideal. The acquisition of material goods by 
force of arms has during the greater part of the world's his- 
tory been held more honorable than by honest toil, and in 
the general peaceful pursuit of economic well-being we have in 
civilized nations only recently reached an ethical goal that has 
stirred the hope of the best among men for many generations. 
Until within forty 3'ears we have had slavery as a part of the 
industrial life of the United States, and only in the present 
generation have we realized in its abolition an ethical goal in 
our economic life. Further illustrations will on reflection oc- 
cur to the reader. Ethical purposes for the future exist now 
as they have always existed, and they will mold our economic 
life. 

Professor Franklin H. Giddings arrives at the same con- 
clusion from a somewhat different starting-point. In his 
Sociology and Political Economy he explains that political 
economists deal with the actual, but that the actual contains 
the social ideal, since in striving for the realization of a social 
ideal we strive to make that general which already exists as 
something exceptional. Living men go before us as lumi- 
naries to show us the way. They are our ideal. 

The "Is" in a measure embraces the future "Ought." This 
in itself answers the question whether political economists 
should deal merely with what is, or also with what ought to 
be. The two cannot be entirely separated. Moreover, merely 
to know what is in all its bearings is itself often for us to know 
what ought to be, as in the case of the evils of child labor. 
Another reason for the same conclusion is this: we want to 
know what ought to be and how it can be, and who can tell us 
so well as he who has studied what exists and the processes by 



94 An Introduction to Political Economy 

which it has come to exist? There is no separate science of 
the economic "ought/' and it certainly does not at present 
seem desirable to separate it as something distinct from polit- 
ical economy. 

"Is Political Economy a Science ?" — Thus far no attention 
has been paid to the question so frequently asked, "Is political 
economy a science?" Science means systematized knowl- 
edge with regard to a body of related phenomena. It is or- 
dered knowledge with definite bounds, taken out of the great 
sea of knowledge because it pertains to groups of facts con- 
ceived as forming a whole, and as therefore more closely con- 
nected with one another than with other groups of facts. 
Science is a branch of learning. It has been said by some that 
a body of knowledge is a science only when it carries with it the 
power of prediction. "Voir pour prevoir/' wrote the great 
French positivist, Auguste Comte. But there can scarcely be 
such a thing as any branch of learning worthy of a name 
and of the attention of men which does not carry with it 
more or less power of prediction. How much it is impos- 
sible to tell until the science is complete and finished. 
Sciences differ in this respect as in others; some are still 
very imperfect, while others are in a condition approximating 
perfection. 

In England and America the word science is frequently 
heard in a use which is itself a sad commentary on a too com- 
mon tendency in both nations. You will often hear a school- 
girl say, "I am studying science," when she means some 
branch of natural science. It may not show that we have 
given too much attention to physical sciences, but it does 
clearly prove that we have unduly neglected mental and social 
sciences of all kinds. In the minds of some this use of the 
word springs from that materialistic view of the world which 
refuses to admit the possibility of positive knowledge about 
things which cannot be seen, handled, and weighed. Why 
political economy is less worthy than biology to be called a 
science is hard to understand, unless it be for the reason that 
our science is less advanced toward completion. 



The Nature and Scope of Political Economy 95 

Three Classes of Definitions. — The various definitions 
which different writers have given of political economy fall 
naturally into three main classes, and show clearly that three 
conceptions regarding the nature of the science have prevailed. 
To be sure, writers frequently fail in their definitions to de- 
scribe accurately their conceptions of the nature of political 
economy, but they may, nevertheless, be divided into classes 
according to their fundamental ideas respecting the scope and 
purpose of the science, whether they have accurately expressed 
these in their definitions or not. 

Writers of the first class regard political economy as a sci- 
ence which has to do with external valuable things or eco- 
nomic goods — that is, with wealth, as that word is used by 
economists; writers of the second class regard the science as 
having to do with economic goods in their relation to man; 
while writers of the third class regard it as dealing with man 
in his relation to economic goods. Note the logical evolution 
in the transition from one to another of these three concep- 
tions. Economic goods are first made the primary thing, and 
are treated almost as if their production were an independent 
process apart from the will of man, one extreme writer going 
so far as to say that the laws governing the production of 
wealth would be just what they are if man did not exist. The 
social relations involved in the production and consumption 
of economic goods are in the second conception of the science 
considered more carefully, and finally the original process is 
reversed, and it is distinctly asserted, as by Professor Eoscher, 
that "the starting-point as well as the object-point of our sci- 
ence is man." 

The definition of political economy found in Mrs. Faw- 
cett's little Political Economy may be taken as a fair presen- 
tation of the first plass of conceptions. It is as follows : "Po- 
litical economy is the science which investigates the nature of 
wealth and the laws which govern its production, exchange, 
and distribution. " 

The definition of political economy to be found in John 
Stuart Mill's treatise may be taken as a tolerably accurate 



96 An Introduction to Political Economy 

presentation of the second class of conceptions. "Writers on 
political economy/' says Mill, "profess to teach or investigate 
the nature of wealth and the laws of its production and dis- 
tribution, including directly or remotely the operation of all 
the causes by which the condition of mankind or of any so- 
ciety of human beings in respect to this universal object of 
human desire is made prosperous or the reverse." In such a 
definition as this it will be noticed that social relations are 
dragged in, as it were, through a back door. The definition 
recognizes that political economy must concern itself with 
social considerations, but it does not at once place them in the 
foreground as the main thing with which we are to deal. 
Mill's position is perhaps brought out still more clearly in the 
full title of his work, which is Principles of Political Econ- 
omy, with Some of their Applications to Social Philosophy. 
Social philosophy is here evidently viewed as something out- 
side of political economy rather than as a larger whole of 
which political economy is only a part. 

Professor Henry C. Adams, of the University of Michigan, 
in the second edition of his Outlines of Lectures upon Polit- 
ical Economy, offers a statement about the science which may 
be placed among definitions of political economy as it is un- 
derstood by those who hold the third class of conceptions. It 
should be said, however, that he himself does not call his 
statement a definition. It is as follows : "Political economy 
treats of industrial society. Its purpose as an analytic sci- 
ence is to explain the industrial actions of men. Its purpose 
as a constructive science is to discover a scientific and a 
rational basis for the formation and government of industrial 
society." 

While not by any means all of the numerous definitions of 
political economy are so worded as to place them clearly in 
any one of these three classes, and while not all political econ- 
omists are true to the conception expressed in their own defi- 
nition, yet the economists themselves may be arranged, in a 
rough sort of way at least, under one or another of the classes 
corresponding to the conceptions, and may thus be divided 



The Nature and Scope of Political Economy 97 

into three groups, although, as has just been implied, there 
is more or less shifting of standpoint and wavering of con- 
ception, and although certain economists stand near the 
boundary line of two conceptions. 

The Growth of Political Economy. — The order in which the 
definitions have been given shows the evolution of our sci- 
ence. The evolution is not merely logical, but also, in a rough 
way, historical. It has grown from the first conception to 
the second, and then from the second to the third, and with 
this growth the character of political economy itself has 
somewhat changed. The words political economy do not 
now mean precisely what they once did. This evolution of 
economic science has not been strictly a chronological one. 
The most we can say is that in the main the chronological 
movement has corresponded with the logical development of 
the science. Political economists did not adopt definitions 
of the first class, then of the second, and finally of the third. 
The case may be stated more correctly in this way : Beginning 
with this century these various conceptions or ideals of po- 
litical economy have been engaged in a contest. At first 
definitions of the first class embodied the prevailing concep- 
tion, then definitions of the second class, and now definitions 
of the third class. But there has always been some one of 
prominence to challenge the prevailing conception. Thus, 
early in this century, Sismondi, the Swiss economist, defined 
political economy as "the science of human happiness," and 
Malthus, his friend, the distinguished English economist, sub- 
ordinated wealth to the welfare of man, opposing those who 
treated public questions merely from the standpoint of 
pounds, shillings, and pence. He regarded political economy 
as the science of wealth in its relations to man, emphasizing 
strongly the latter part of the conception. While the pre- 
vailing conception of political economy at the present time 
is presented fairly well in the definitions of Professor Adams 
and the author, it is still contested by those who adhere to 
definitions of the first class. 

Political Economy and a Natural Beneficent Order. — The 



98 An Introduction to Political Economy 

first conception of political economy may be traced back to 
certain French writers of the second half of the eighteenth 
century called the Physiocrats, who are usually regarded as the 
founders of the science, because they were the first to try to 
treat national economic life in its entirety in a rounded-out, 
systematic manner. Their fundamental thought is closely con- 
nected with ideas concerning a beneficent external order of na- 
ture which dominated the political philosophy of the time of 
the French Revolution. Nature was regarded as a power out- 
side of man, which had drawn up, as it were, a code for the 
entire conduct of the individual and social life of man. Na- 
ture was looked upon as wholly good. All the evil in the 
world was traceable to man, who, although a product of na- 
ture, and good in his essence, yet somehow had managed to 
act contrary to his being and to otherwise universal law, and 
had produced all sorts of evil institutions. There was then 
a constant cry, most loudly uttered by Jean Jacques Rousseau, 
"Back to nature." They held government responsible for 
most of the sufferings of humanity because, according to their 
unhistorical view, it was an artificial product of man's con- 
triving, and hence some wished to abolish government alto- 
gether, while others advocated the reduction of its functions 
to a minimum, and gave as the watchword, "Laissez-faire" — 
that is, "let alone, do not interfere with this beneficent order 
of nature." Space is too limited to permit the author 
in this place to trace the theory of natural law back through 
mediaeval writers to Roman jurisprudence and thence to Greek 
philosophy, nor can it here be shown how full of contradic- 
tions and absurdities it was, but it will readily be understood 
how it led to the first conception of political economy. Na- 
ture had established laws external to man for the production, 
distribution, and consumption of economic goods, and it only 
remained for man to discover these laws, and to conform to 
them in all his actions. Gradually, however, it became more 
and more apparent to thinkers that the conception of economic 
goods, or, to employ the more usual term, wealth, is itself a 
subjective idea ; that, although material things may exist apart 



The Nature and Scope of Political Economy 99 

from the needs and desires of man, wealth, properly speak- 
ing, can have no such independent existence, and that the 
will of man is a main factor in all economic life. It was seen, 
moreover, that progress consists not in blind subjection to 
external natural laws, but in a conquest and subjugation of 
wild nature. The conception of political economy has ac- 
cordingly been modified until finally man is made the begin- 
ning and end of all inquiries, and nature is regarded as his 
servant. 

Different Conceptions of Man and External Nature. — Po- 
litical economy occupies a middle ground between natural 
sciences and mental sciences. It deals with man, but with 
man in relation to external nature, which furnishes him with 
material for goods to supply his wants. It must presuppose 
the existence of natural physical laws that are not at all the 
product of human volition. Some writers have been inclined 
to overlook the part which external nature plays in economic 
life, and consequently to go to an extreme in their conceptions 
of political economy. Starting with definitions which overlook 
man, we finally come to definitions which overlook the phys- 
ical universe outside of man. Thus Professor de Laveleye, in 
his Political Economy, offers this definition: "Political econ- 
omy is the science which determines what laws men ought to 
adopt in order that they may, with the least possible exertion, 
procure the greatest abundance of things useful for the sat- 
isfaction of their wants, may distribute them justly, and con- 
sume them rationally." It must in fairness be explained, 
however, that Professor de Laveleye himself is not true to 
his definition, for he discusses many things which do not by 
any means exclusively pertain to legislation. 

Main Parts of Political Economy. — Political economy has 
become so large a science that it has been found desirable to 
divide it into parts, each of which is often treated in separate 
works or volumes of the same work. Sometimes each one of 
the great parts is treated almost as a separate science. With 
the evolution of political economy it is beginning to assume 
the appearance of a group of sciences. The connection among 



LofC. 



100 An Introduction to Political Economy 

the main parts of the entire subject has so far been well 
preserved, and their unity in the larger whole rarely escapes 
the consciousness of the student. 

The Germans usually divide their treatises on political 
economy into three main parts. The first is concerned with 
general principles. This should properly include an outline 
sketch of the entire subject, the parts of which may be further 
elaborated later. The second part deals with the detailed 
practical application of general principles, as in the discus- 
sion of forests, canals, railways, banks, and the sphere of the 
state with reference to these economic factors. The third 
part treats of finance; the collection and administration and 
expenditure of public revenues, including a discussion of 
the various sources of the revenue, as productive property, 
taxes, and loans, and entering into an examination of public 
debts with reference to their origin, growth, management, and 
extinction. 

American and English economists have not commonly elab- 
orated their treatises so fully as have the Germans. How- 
ever, in recent years they have practically approximated the 
German custom. We find in the English language general 
treatises giving an outline and more or less complete treat- 
ment of the entire subject and separate treatises on public 
finance, and under entirely separate titles we have special and 
detailed treatment of peculiarly interesting or immediately 
practical problems. It will readily be seen that a topic like 
population can be treated in an independent work, and it has 
been so treated by Malthus, a great English economist. Land, 
and the price paid for its use, called rent, may also be treated 
in an independent work, and has been so treated by an Amer- 
ican economist, the late President Francis A. Walker, in a 
book called Land and Its Rent. Various English and Amer- 
ican writers have given us separate books on the subject of 
money and banking. Professor J. Laurence Laughlin, of the 
University of Chicago, has written a separate treatise on The 
History of Bimetallism; Professor Charles J. Bullock, of 
Williams College, has recently published a similar work, en* 



The Nature and Scope of Political Economy 101 

titled Essays in the Monetary History of the United States; 
and Professor F. W. Taussig, of Harvard University, has 
written a work on the Tariff History of the United States. 

The general treatises on political economy are commonly 
divided into four parts or books, discussing respectively : Pro- 
duction, or the creation of utilities; Distribution, or the de- 
termination of the ultimate share which each person receives 
of what is produced, or, as we might perhaps say with a 
tolerable degree of exactness, the amount of income of the 
various members of industrial society; Exchange, or, better, 
the Transfers of Goods, sometimes also called the Circulation 
of Goods ; Consumption of Goods. The part on consumption,, 
though containing the reason for all economic activity, is 
sometimes omitted. 

If we look upon this division of political economy into 
parts as perpendicular, we could speak of a division of the 
science into economic dynamics and economic statics as a hori- 
zontal division. It cuts across all the others. John Stuart 
Mill, who gives too little attention to economic dynamics in 
general, has one book on this subject in his political economy. 
It is entitled, Influence of the Progress of Society on Produc- 
tion and Distribution. Mill has no book on consumption, but 
his fifth book, entitled Of the Influence of Government, con- 
tains a brief treatment of the subject of finance. 

The present work follows a plan which is in some respects 
a new one, and particularly in the distribution of space among 
the various topics discussed. The author aims to give his 
readers an insight into the real significance of political econ- 
omy and a general view of the entire ground, whereby, it is 
hoped, many will be led to continue further their economic 
studies. A large part of the work is, of design, descriptive. 



Literature. — John Stuart Mill, Logic, Book VI. Auguste 
Comte, Positive Philosophy, translated by Martineau. Frank- 
lin H. Giddings, Sociology and Political Economy, in publica- 
tions of the American Economic Association, vol. iii. 
8 



102 An Introduction to Political Economy 



>l 



c 



CHAPTER IX 

METHODS IN POLITICAL ECONOMY 

Methods whereby knowledge is acquired are properly dis- 
cussed in logic, but since sufficient familiarity with logic can- 
not be assumed in such a work as the present, a short chapter 
must be devoted to a discussion of the subject in its bearing 
on the study of economic truth. 

Logicians have usually spoken of all methods for the ac- 
quisition of knowledge as either deductive or inductive, but 
recently a third method, the statistical, has been assigned 
an equal rank, and it has even been claimed that the statis- 
tical method is the one peculiarly adapted to the study of all 
the social sciences. 

The Deductive Method is the method of reasoning from the 
general to the particular. The most familiar illustration is 
this: All men are mortal; John is a man; therefore, John is 
mortal. We begin with a statement respecting a class, we see 
that a particular individual belongs to this class, and then we 
assert that what is true of the class is true of the individual. 
This is self-evident. This kind of reasoning is often called 
in colloquial English "putting two and two together." 

Inductive Method. — Now inductive reasoning reverses the 
process. It finds that certain things are true of a great num- 
ber of individuals which by observation are declared to be each 
a fair type of a class, and then what is true of the individuals 
is said to be true of the entire class. It is seen that John dies, 
or is mortal. Observation shows that James, Richard, 
Robert, and others likewise die. Observation as reported in 
history tells us of no man who has not died. We say then 
that John is a typical man, and we conclude that all men are 
mortal. These two methods manifestly supplement each 
other. 



Methods in Political Economy 103 

Statistical Method. — But when we mass together large 
numbers of facts about the life of man as a member of so- 
ciety — in other words, social phenomena — we observe certain 
regularities among them. No one of them can be taken as 
a type, yet we can arrange and group them and gather in- 
formation about them. Suicides serve as an excellent illus- 
tration. What could appear to be less regular than the 
means adopted by human beings to put an end to their own 
lives ? Yet when we study a large number of cases, say thou- 
sands, we find that a certain proportion in each hundred 
will hang themselves, another proportion will poison them- 
selves, and another proportion will drown themselves. Like- 
wise we discover a regularly recurring proportion between men 
and women thus ending their life. We find that a certain per- 
centage will choose a rainy day, another percentage a clear 
day. 

Mortality in general, as has been explained in another con- 
nection, also serves as an excellent illustration. It is not easy 
to tell whether Robert, aged forty, will die during the next 
twelve months, but it is easy to tell approximately how many 
men among a hundred thousand aged forty in a particular 
country will die. The observation of these regularities in 
large masses of facts, and the acquisition of knowledge there- 
by, is called the use of the statistical method. 

Deductive School. — Economists during the first half of this 
century generally made use of what they called the de- 
ductive method. They started with a few general proposi- 
tions afforded them by their own consciousness or by obser- 
vation of familiar facts, or by other sciences, and sought to 
explain thereby the economic life of man. One of these 
general propositions is the assumption that the main motive, 
almost the exclusive motive, and the only one to be taken 
into account in reasoning respecting economic life, is self- 
interest. Manifestly, if we can assume that men are always 
actuated by self-interest, it is only necessary to find out 
where self-interest will lead to predict the course which they 
will pursue. Undoubtedly this throws a flood of light on eco- 



104 An Introduction to Political Economy 

nomic phenomena and explains many of them. A second 
general proposition found in the writings of the older de- 
ductive economists is this : population tends to increase faster 
than the means of subsistence. A third proposition asserts 
that capital increases the productivity of labor, and that 
further accumulations of capital may be made which will in- 
crease indefinitely the amount of economic goods annually 
produced. A fourth proposition asserts what is called the 
"law of diminishing returns ;" which means that after a cer- 
tain amount of labor and capital — that is, a certain amount 
of economic energy — has been applied to agricultural land it 
does not pay to apply more, because the return will not be in 
proportion to the increased outlay. Thus, in a certain part of 
the world, it may pay to hoe corn three times, but not four or 
five times. The economist who formulated these propositions 
said that political economy is not eager to gather facts, be- 
cause these general propositions explain all facts of economic 
society. 

The deductive method is also called the a priori method, 
and economic reasoning based chiefly on such a method is 
often called a priori political economy. 

The Historical School. — About the middle of this century 
there arose in Germany a stronger and more vigorous pro- 
test against the deductive method than had ever been made be- 
fore. Isolated voices had been raised against it previously. 
An English economist, the Rev. Eichard Jones, had, about 
1830, claimed that we could not out of our own inner conscious- 
ness with the aid of a few general propositions explain the 
complex phenomena of economic society, and had said that if 
we would know how men live, we must "look and see." Other 
economists had given utterance to similar opinions, but they 
had not been heard. Three gifted men in Germany, Karl 
Knies, Wilhelm Roscher, and Bruno Hildebrand, all uni- 
versity professors, coming forward with what they called the 
historical method, quickly made an impression in their own 
country, and their influence gradually spread throughout the 
civilized world. 



Methods in Political Economy 105 

We ought rather to speak of an historical school than of an 
historical method. The term is used in a broad sense. It is 
better than inductive, because it includes much more than 
induction. The name historical is not accurate, but is taken 
from one prominent characteristic of the school. Men of the 
historical school, believing in observation, regarded the past 
experience of man in history as a valuable source of informa- 
tion. Men had, they claimed, been conducting experiments 
in their economic life during their entire past existence on 
this earth, and had recorded the results of their experiments 
with more or less accuracy. History was considered therefore 
to be a proper field for observation. At the same time it was 
never claimed that history alone was sufficient to enable us to 
construct a science of political economy. In their view other 
nations were to be studied in their present life and in their 
past, and hence we find the expression comparative method 
also applied to the work of this school. Generalization and 
induction from large masses of related facts was also advo- 
cated, and we accordingly encounter the term statistical 
method as applicable to their work. 

In some cases the historical school went to an extreme in 
decrying the possibilities of deduction as a method in eco- 
nomic study. After laying a broad basis for deduction, they 
still denied the utility of that method, and in some cases con- 
tinued an uninterrupted search for economic facts, without at- 
tempting to correlate this body of truth, or to generalize suf- 
ficiently from it. The result was that a reaction occurred, 
which found its chief exponents in a group of Austrian econ- 
omists, commonly called the "Austrians," who have urged 
the importance of the deductive method, and who have con- 
structed a political economy which is in many features the 
dominant political economy of to-day. But while they have 
insisted upon the use of the deductive method, and while they 
have consistently and brilliantly used that method in their 
work, they have agreed with the historical school as to the 
importance of establishing and verifying the fundamental 
premises of their deductions by thorough and painstaking in- 



106 An Introduction to Political Economy 

ductions from the history of man's economic life and from 
the facts of man's industrial life to-day. 

For years there was a sharp antagonism among the advo- 
cates of the different methods, many contending for the suf- 
ficiency of the older deduction as exemplified by the English 
economists, others insisting upon the sufficiency and necessity 
of the historical method, while a third group were working for 
acceptance of the "newer deductive method." From the strife 
of method much interest and advantage was gained. Har- 
mony has followed the older opposition. Now, although there 
are still occasional strong partisans of one or another of the 
methods which have been explained, most economists are work- 
ing quietly on, recognizing that for some problems one method 
will be more advantageous, while for other problems another 
method may have to be adopted. Again, the prevailing use 
of any method by one author is in many cases determined by 
the temperament of that author. One great American econ- 
omist is so brilliant in his use of deduction that it would be a 
loss to the science if he were obliged to enter upon the task 
of gathering the wide range of data which underlie his reason- 
ing. Others, and particularly the younger men in the field, 
are fitted for the task of wide and deep research, while the 
science will benefit if they delay to a time of riper intellectual 
power the task of deductive construction from their materials. 
The bitterness of the old strife has given place to a shoulder- 
to-shoulder struggle by all means and methods for a true ad- 
vancement of the science. 

It ma}' be said, then, that modern political economy uses 
these methods: deduction, induction, observation and de- 
scription, statistics. Deduction and induction have already 
been discussed, and examples will be afforded by the sub- 
sequent chapters in this book. Deduction is and should he 
used, and, especially for certain classes of phenomena where 
other methods fail. International trade may be cited as an 
example. In considering this question it is difficult to sep- 
arate and interpret the facts. England has prospered, let us 
admit, under free trade. Was free trade the cause? Cer- 



Methods in Political Economy 107 

tainly other forces have been at work tending to make Eng- 
land a wealthy country. The United States, it is equally 
true, has prospered under protection. Was protection the 
cause ? How difficult to answer ! We must seek aid in such a 
case from known general principles. On the other hand, in 
considering economic problems, so many premises are possible, 
and so many combinations of premises, that deduction is like- 
ly to mislead. When this method is used conclusions should 
always be carefully tested by actual experience, and we must 
be ready not merely to test conclusions, but even at the same 
time to draw conclusions from facts in cases suitable for de- 
duction, because human passion has such play in deductive 
processes. Deduction could not convince the hard hearts of 
English Gradgrinds that factory legislation was a good thing, 
but facts as hard as their hard hearts were arguments which 
they knew not how to resist. 

Observation and Description have a large place in political 
economy. Logical processes, have too exclusively dominated 
a great deal of economic discussion. More plain, simple de- 
scription is needed. Labor organizations, cooperation, and 
profit-sharing experiments, the working of systems of taxa- 
tion, are to be observed and described. Institutions and cus- 
toms are to be observed and described. The effect of desires — 
of consumption — on production also needs careful observation 
and description. Nothing is so little cultivated in general 
as the habit of observation of economic and social phenomena. 
Text-books, written by those whose little learning is a dan- 
gerous thing, have aroused prejudices and have provided 
men with a set of shibboleths, terms, and phrases by which 
they decide all practical problems of statesmanship in an 
offhand way, much more easily than by patient inquiry. 
Words have been taken for knowledge, and progress has 
thus been obstructed. If readers of this book will keep their 
eyes open, their minds and hearts accessible to new truth, and 
will consecrate themselves to truth, they will advance rapidly 
in economic knowledge. A brief outline or sketch of a sci- 
ence does positive harm when it leaves its readers with the im- 



108 An Introduction to Political Economy 

pression that they are well informed. The aim of this 
book is not to leave readers with a satisfied feeling, but to 
awaken curiosity and to stimulate them to further study; in 
particular, to arouse in them habits of careful and accurate 
observation of the economic life of all classes of men, hours 
of labor, wages paid, housing of the laboring class and other 
classes, various taxes paid in their own town, the relation of 
local taxes to state taxes, the methods of granting franchises 
to corporations for the use of the streets, comparisons between 
the cost of electric lightirfg under municipal and private 
ownership respectively, etc., etc: 

Analysis. — Analysis is to be regarded as an aid to other 
methods rather than as an independent method. It con- 
sists in separation of complex phenomena into parts so 
that they can be better understood. Economic knowledge is 
impossible without careful analysis. One of the most fre- 
quent causes of error is a lack of analysis, or, as is more com- 
monly said, a failure to discriminate. Monopolies serve as 
an illustration of this danger. Some are good, others bad; 
some are good under certain conditions and bad under others ; 
some are brought about of necessity by the inherent properties 
of certain kinds of business ; others are social products which 
can be abolished. Nevertheless, monopolies are usually judged 
"in a lump." They are praised or blamed indiscriminately, 
and legislators too often desire to treat them all alike. Analy- 
sis enables us to separate them and arrange them in groups 
so that each may be discussed and treated in an appropriate 
manner. 



Literature. — Mayo-Smith, Statistics and Sociology and 
Statistics and Economics; Pearson, Grammar of Science; 
Meitzen, History, Theory, and Technique of Statistics, trans- 
lated by Professor Falkner; Farr, English Vital Statistics, 
2d edition. The monograph on "Statistik" which Chancellor 
von Kumelin contributed to Schonberg's Handbuch der 
Politischen Oekonomie should also be consulted by those who 
read German. 



Laws in Political Economy 109 



CHAPTER X 

LAWS IN POLITICAL ECONOMY 

In attempting to study the laws of political economy we 
should begin with a clear notion of the meaning of the term 
itself. Law is of so many kinds, and the various conceptions 
lend themselves to confusion so easily, that it is especially nec- 
essary to be on our guard. Very often when we hear of a law 
in the natural sciences we unconsciously read into the word a 
thought borrowed from the concept of law as a civil statute. 
Now laws which are enacted by government are mandates. 
They say that such and such things must be done or must not 
be done, and that if a command or a prohibition is disregarded, 
punishment will follow. We have only to think clearly for a 
moment to see that the laws of the physical universe are very 
different from these statutory laws. In the one case there is 
a command, in the other a statement that under certain con- 
ditions some certain thing will happen; in the one case we 
know that violation is frequent, while in the other there can 
be no violation. If there be an exception to a general rule, 
that simply means that the law itself is not a perfect or uni- 
versal one; for if the law be a perfect one, it will represent 
absolute universality, and will therefore be without an ex- 
ception. 

Social laws, or laws in the social sciences, are simply state- 
ments that a certain course of action may be looked for in 
society when certain conditions are present, and if these 
laws relate to human actions in which the strength of the 
moving impulses chiefly at work can be measured in terms of 
money, we call them by the special name economic laws. They 
are not laws, therefore, in the. sense of mandates, nor are they 
laws in the sense of universal statements of certainty, but only 
more or less general assertions of the probability of certain 
social occurrences under a given set of conditions. 



110 An Introduction to Political Economy 

"Natural Laws." — Laws in the economic world have been 
much discussed, and there has been a parade of "natural laws" 
in economic life which we have been called upon to admire and 
to obey. Now the word natural is used in at least two senses. 
If nature includes man and everything in the universe, it is 
mere tautology to say that everything which happens is 
natural. But nature is generally conceived as including 
everything except man's mind and its voluntary activity 
as manifested in his acts. By natural laws are meant laws 
precisely like those of the external physical universe. If 
this sense of the term be employed, it may be said that there 
are no natural laws in political economy. Why should there 
be? Political economy deals with a different order of facts 
than those which concern the natural sciences, and its laws are 
of a different kind. The marvelous progress of the natural 
sciences, combined with what may be called a wave of material- 
ism which in recent years has passed over us, has led to an un- 
due exaltation of natural laws, and people come forward 
triumphantly with the claim that they can demonstrate the 
existence of natural laws in the business world or even in the 
spiritual world. All that they accomplish, however, is to 
show analogies between certain orders of facts. It is no dis- 
paragement either to organic society or to the religious life 
to admit frankly that they are not governed by natural laws — 
that is, by the laws of the external physical world. 

"Laissez-Faire." — What are these natural laws of eco- 
nomic society? Let some one enumerate them. When this 
has been attempted no progress has been made beyond a 
few truisms and self-evident propositions which political 
economy never established. One writer speaks of the maxim 
"laissez-faire" the theory of noninterference and passivity of 
government, as natural law. "It carries with it," says this 
writer, "the revelation of our science, and announces the pres- 
ence of those natural laws which it is the mission of the sci- 
ence to study. At the same time this maxim is the first fruit 
of this revelation." Unfortunately for the theory of natural 
laws, the wisdom of this maxim, laissez-faire, has generally 



Laws in Political Economy 111 

been disproved both by science and practice in all civilized 
lands. It is thought that it performed good service at the 
time it became powerful, but that it is no longer suited to the 
needs of the modern world. Imagine physicists renouncing 
the law of the attraction of gravitation as no longer adapted 
to our world ! 

Self-Interest. — But have not men always been actuated by 
self-interest? Were not the Medes and Persians thousands 
of years ago, like the Americans of to-day, moved by a de- 
sire to advance their own interests ? Is there not here at least 
a natural law ; at any rate — and this is usually meant — a law 
which acts with the regularity and certainty of the physical 
universe ? By no means. Self-interest is not a constant force 
which can be accurately measured. It leads one man to 
cheat, another to steal, a third to underhand business prac- 
tices which just keep within the law. It prompts a fourth 
to deal honestly, to describe his wares as they are, and to sell 
them at a "fair price/' and at the same price to all. Self- 
interest induces some men to smuggle, but it equally induces 
others not to smuggle. We observe the proportion between 
smugglers and nonsmugglers. Now let us change the laws, 
reducing or raising taxes on imported commodities. Lo! 
the proportion between smugglers and nonsmugglers has 
changed. Some adulterate their goods ; others do not ; some 
manufacturers do all that they can to secure the passage of 
laws regulating and restricting child labor; other manufac- 
turers oppose the passage of these laws and break them after 
they have come into force. Then we hear about real self-inter- 
est and apparent self-interest. Doubtless there is such a dif- 
ference, but must not a man be moved by different motives 
than self-interest to perceive his real self-interest? Some 
claim that self-interest may be compared to the attraction 
of gravitation. They say that other forces act counter to the 
attraction of gravitation, as the friction of the air or the force 
of the wind, but that all these forces do act, and that the 
motion which takes place is a result of their combined action — 
a resultant. This is not the case with human motives. We 



112 An Introduction to Political Economy 

choose, and one motive displaces another. Again, back of 
motives there are laws and institutions on which motives act. 
How will self-interest act when custom fixes prices? How 
when competition fixes prices ? 

Social Laws. — It must be apparent that we have to do here 
with laws different from those which govern the physical 
universe. Our laws may be called relative laws, or histor- 
ical laws, or, if one pleases, social laws. They are the result 
of the peculiar constitution of our politico-economic life, 
which is made what it is by the action of human desires 
and passions and efforts upon the physical universe governed 
by its own laws. The will of man is a main factor in all 
politico-economic phenomena, and this will must be regarded 
by students of society as itself a creative energy, introducing 
new forces. We can observe certain regularities and tenden- 
cies in all social phenomena. When statistics began to make 
rapid strides these regularities and tendencies were called 
laws. When it was observed that out of ten thousand people 
a certain definite number every year were married, that an- 
other definite number procured divorces, that still a different 
but definite number committed crimes, and that a precise num- 
ber, which could be told in advance, took their lives — when, in 
short, all social phenomena appeared to recur regularly year 
after year — a feeling akin to fatalism arose, and some statis- 
ticians were inclined to look upon these regularities as laws of 
the external world beyond the control of man. Further in- 
quiry revealed differences in these proportions between dif- 
ferent lands, and showed further that differences could be 
brought about by the action of man. The phenomena of in- 
temperance have in parts of England and other countries 
been definitely altered by agitation of various kinds for re- 
form. Still more striking has been the decrease in mortality 
in England and America and in some countries of continental 
Europe, a* decrease which is due to the attention given to sta- 
tistics in the modern world as well as to the wonderful advance 
in medical and surgical skill and in sanitary science. For sta- 
tistical reports have shown places where mortality was alarm- 



Laws in Political Economy 113 

ingly great, and has pointed unerringly, in very many in- 
stances, to the source and the cause of the evil. 

We have at times to do with powerful tendencies in eco- 
nomic life, and these for a period appear to resemble laws of 
the physical universe, so without exception is the occurrence 
of the course of action which they predicate or predict. The 
tendency of certain pursuits, like gas service, street-car serv- 
ice, telephone service, and the like, to become monopolies acts 
with a power like that of a mighty river, and we can with 
safety predict that apparent competition in the field of nat- 
ural monopoly will prove both illusory and temporary. Most 
instructive is the observation of great currents in our eco- 
nomic life and the study of the forces back of them. 



114 An Introduction to Political Economy 



CHAPTEE XI 

A FEW REMARKS ON" THE UTILITY 03? POLITICAL ECONOMY, 
WITH SOME GENERAL CONSIDERATIONS ON THE RELATION 
OF POLITICAL ECONOMY TO OTHER SCIENCES 

Political Economy a Useful Science.— The preceding 
pages have, it is hoped, convinced the reader that political 
economy is a useful study, and one worthy of the great- 
est minds. It affords room for the speculative intellect, 
and yet speculations can be tested by the experiences of 
actual life. Fancy and imagination, so necessary to all sci- 
ences, have here ample scope for their exercise in attempts 
to construct hypotheses to explain social phenomena. The 
best powers of observation find opportunities for service, 
and experience will further sharpen them. The keenest 
analytical intellect will never be at a loss for material on 
which to bring all its acumen to bear. Philosophy, which 
seeks to gain an insight into the innermost nature of things, 
is most welcome in political economy. Philanthropic senti- 
ment is gratified by the discovery of ways to benefit the hu- 
man race. 

It is, however, frequently asserted that political economy 
is not practical, that it is in fact "a mere theory," and as 
such its claims are often rejected by business men. This 
is short-sighted. Political economy has to do with indus- 
trial society, and knowledge can be acquired about this by 
systematic study in the manner described. This knowledge 
can be transmitted and increased by accumulation from gen- 
eration to generation. The actual experience of the so-called 
practical man does not take the place of economic knowledge. 
His experience is too narrow and limited. If he is a man of 
small nature, he is very positive as to his own infallibility, and 
looks upon the claim of the economist to be able to give infor- 



Political Economy and Other Sciences 115 

mation about the business world as unwarrantable pre- 
sumption. Yet his conclusions are diametrically opposed to 
those of a practical man in another line of business on the 
opposite side of the street, and both of them differ in views 
from the opinions of practical men in a neighboring city. 
It is because the range of facts of each is exceedingly narrow 
and because each has been entirely absorbed in his own affairs 
that they are so certain of mutually contradictory facts. It 
is partly on this account that the attempt to improve politics 
by putting practical business men in office has so often proved 
disastrous, and men have been again and again obliged to go 
back to the so-called professional politician. Business facts 
are not all the facts that are needed in government. Finances 
of government, for example, ought in some respects to be con- 
ducted on principles exactly opposite to those which obtain in 
private financiering. Political economy is a young science — 
as a separate science scarcely over a hundred years old — and it 
behooves political economists, though conscious of their own 
value, to be modest in their claims and to remember that much 
is yet to be learned by the wisest of them. Nevertheless, how 
diverse are the elements which have contributed to this body 
of knowledge ! In the historical sketch at the close of this 
volume it will be seen that philosophers have helped to build 
it up; that distinguished and remarkably successful business 
men have contributed their best thoughts to advance its 
growth; that statesmen of the leading civilized nations have 
participated in its development, as well as those who have 
been primarily political economists; while great philanthro- 
pists have helped to give it shape. For a century, then, 
business, philosophy, jurisprudence, and practical politics 
and philanthropy have helped to make political economy 
what it has become, and the fruit of so much intellectual 
effort and such extended experience is not to be regarded 
lightly, even though it be acknowledged that on account of 
the complexity of the subject-matter political economy is 
yet in an imperfect condition. Even where it cannot speak 
authoritatively it is always entitled to a respectful hearing. 



116 An Introduction to Political Economy 

Every man who is not a fool must act according to some the- 
ory. The ordinary man is often guided in economic utter- 
ances by antiquated theory which has gradually percolated 
down through several social strata until it has reached him. 

A practical man might as well try to get along without a 
lawyer as a modern nation without political economists. The 
political economist is in fact to the people as a whole what the 
lawyer is to the private man. It is the business of the polit- 
ical economist to guard the interests of the masses, and to sug- 
gest measures to promote their welfare. The political econ- 
omist may in some respects be compared to a physician. We 
can imagine a man saying, "I know more about my own body 
than a mere theorist who has been studying under college pro- 
fessors and working in laboratories and has never had any 
practical experience with my body." Yet we know that such 
talk is nonsense. It is because the practical business man 
has so often failed to recognize this and to remedy his own 
shortcomings, and has advanced his crude and antiquated 
ideals as practical guides, that one of our deepest thinkers in 
political science has spoken of the "practical man as the bane 
of our political life." Certain it is that our government will 
continue to be almost exclusively a government of lawyers 
until people more generally take pains to instruct themselves 
in the various branches of political and social science. Gov- 
ernment can never be conducted like a manufactory or a 
mercantile establishment, and every proposal so to conduct 
it reveals ignorance of first principles. 

Political Economy and Other Sciences. — Every science 
contributes directly or indirectly to every other. All knowl- 
edge is one. But we are now concerned chiefly with that 
group of sciences which has to do especially with human so- 
ciety. Before we pass on to remarks about other social sci- 
ences a word must be said about philosophy and physiology 
and hygiene. 

Philosophy and Political Economy. — Philosophy is per- 
haps useful especially as a mental training. It seeks to 
look into the fundamental principles of all knowledge and 



Political Economy and Other Sciences 117 

inquires then into the nature of the state and of society and 
the aim of life. It seeks a final reason for things. It gives 
broad and generous views, and lifts up the mind in the con- 
templation of immense themes. Philosophy helped to give 
birth to political economy, and when in England our science 
seemed on the point of collapse philosophy gave it new life. 
Philosophy has again and again been a source of inspiration 
to German economists, and perhaps the lack of it explains 
the sad deadness of our science in France, where for a hun- 
dred years almost nothing has been done toward its real ad- 
vancement. Philosophers like Fichte and Hermann Lotze 
must to-day assist economists who are competent to under- 
stand them. Logic, regarded as a branch of knowledge, is espe- 
cially useful on account of the discipline it gives in careful 
reasoning, particularly in analysis, discrimination, and de- 
tection of fallacies. 

Physiology and Hygiene and Political Economy. — Phys- 
iology and hygiene are helpful in the discussion of social 
questions. Too little has been made of them hitherto. 
Physiology, for example, ought to be consulted in questions 
like child labor, labor of women, especially married women, 
the length of the working day in factories and in open 
fields. Hygiene furnishes rules for sound physical life. M. 
de Laveleye even says that the science of health ought to de- 
termine the normal rate of wages. The human body is the 
chief source of wealth, and physiology and hygiene must 
teach us how to conserve and increase our bodily powers. 

History and Political Economy. — History reveals to us 
the economic life of the past with its instruction and les- 
sons. History clearly presents many of our problems, as, 
for example, the downfall of states. How can we guard 
against the evil unless we truly know its nature? It seems 
clear that economic forces are prominent in the decay of 
civilization. But we have not yet a sufficiently accurate and 
detailed knowledge of them. A profounder study of eco- 
nomic history must precede a satisfactory political economy. 
At ihe same time history itself cannot be understood without 
9 



118 An Introduction to Political Economy 

a knowledge of the economic forces which give it shape. This 
mutual relation between history and economics was well ex- 
pressed by Professor H. B. Adams, of Johns Hopkins Uni- 
versity, when he said that political economy is becoming his- 
torical, and history is becoming economic. 

Ethics and Political Economy. — The relation of political 
economy to ethics has already been sufficiently indicated. 
Ethics is connected with what ought to be, both for indi- 
viduals and for society, and if ethics has heretofore con- 
sidered man too exclusively as an isolated individual, its prog- 
ress for the future evidently lies in the examination of social 
relations. It may be doubted whether ethics can have any 
real existence except as a social science. Political economy 
takes what ethics has to offer as a guide for the develop- 
ment of economic life. Ethical conceptions have always gov- 
erned all social life more or less perfectly. The economic 
life of ancient oriental nations was more under the dominion 
of ethical principles than has been that of modern occidental 
nations. The ethical principles of the East were not of so ex- 
alted a nature as ours, but such as they were they permeated 
the life of the people as ours do not. The national economy 
of the Jews illustrates this excellently. During the Middle 
Ages the Church attempted, and for a time with some success, 
to subordinate all social life-spheres to the demands of ethics. 
Personal service, returns for loans, and prices were regulated. 
The conception "fair price" (justum pretium) was formu- 
lated, and exerted a powerful influence. It seems clear to 
the writer that industrial peace can never be secured until 
the supremacy of ethics is recognized by public opinion, and 
is made effective by laws and constitutions. It is on this 
account that the institution of "fair rents" in Ireland is to 
be welcomed. It may or may not work well in this partic- 
ular instance ; that is, the proper method for giving effect to 
ethical principles may not have been adopted, or it may 
have been; but the supremacy of ethical considerations in 
either case is recognized and the freedom of contract dis- 
tinctly subordinated, as also in the case of American usury 



Political Economy and Other Sciences 119 

laws. Courts in Ireland fix rents which are regarded as 
"fair," irrespective of all agreements. We must also notice 
that "fair prices" are playing an ever-increasing role in the 
United States. This is due to the fact that the field of mo- 
nopoly is growing, and competition fails us as a sufficient reg- 
ulator of prices. Now where competition disappears or is 
manifestly inadequate as a protection of the public, it is a 
recognized principle of common law that the legislature may 
determine prices; but in doing so it must be guided by the 
consideration of fairness, as, for instance, in establishing 
prices for transportation, for the service of grain elevators, 
and for gas, all of which have been acted upon by legislation. 
These legislative prices are frequently brought before our 
courts, which in their review of such legislation are guided 
by the idea of fairness. It may be difficult to formulate any 
general statement of what is fair, but it is not so hard to de- 
termine "fairness" in a concrete instance. At any rate it is 
actually done. "Live and let live" is a homely adage which 
expresses a popular idea of fairness, and this seems in a rough 
kind of way to give a guiding principle to the Irish land 
courts and to American courts in passing upon rates and 
charges for noncompetitive services and goods. Ethics should 
investigate more carefully than it has done the nature of 
mutual rights and duties. 

Political Economy and Religion. — We may properly 
enough speak of a knowledge of religions or even of a knowl- 
edge of one religion as a science. Theology is a systematic 
treatment of a certain order of related facts. But in this 
place we are concerned with religion not so much as a science, 
but rather as an inspiration, as a power to direct life, and thus 
as intimately connected with ethics. Religion, like ethics, 
supplies norms for conduct, but it does more. It supplies a 
moral force to induce men to acknowledge the truth, and to 
do what they know to be right. 

Every system of religion must affect the general charac- 
ter of the nation under its influence. The fatalism of the 
Turks leads naturally to indolence, while the old Jewish 



120 An Introduction to Political Economy 

religion with its high estimate of the good things of this 
world tends to stimulate its followers to activity and to ac- 
cumulation. Christianity moderates desires, sets before us 
a higher aim than wealth, but dignifies the man who 
gains his bread by honest toil, and enjoins diligence and im- 
provement of all talents committed to us. Teaching us to 
love our fellows, it has encouraged enlightenment of the 
masses, and enlightenment has increased prosperity. Love for 
our fellows prompts us to promote their physical welfare in 
every respect, and this in turn tends to conserve and increase 
their strength. 

It is not practicable at present to take up every one of 
the constantly increasing number of branches of social sci- 
ence and to trace the relations between it and political econ- 
omy. These relations must often be quite obvious. The 
treatment of the dependent and criminal classes brings us into 
contact with a multitude of economic phenomena. These 
classes impair the productive power of the community, and 
the number of persons belonging to them is largely, though 
not wholly, determined by industrial conditions. If the la- 
boring population is housed in crowded tenements in the 
slums of cities, such a state of things will help to swell the 
ranks of vice and pauperism. If child labor is general, a gen- 
eration weak in body and will power, with depraved habits 
early acquired, may be expected. Many such reflections will 
occur to the reader, and observation of the life which sur- 
rounds him will every day confirm what is here said. Prison 
labor is a topic which shows the connection, though only a 
small part of the connection, between penology and political 
economy. Poor relief, public and private, is just as intimately 
connected with economics, and it has been discussed, perhaps, 
chiefly by economists. For instance, it was an English econ- 
omist, Malthus, who on economic principles helped to intro- 
duce a reformation of the poor laws of England in 1834. 

Anthropology is sometimes conceived of in a large sense as 
the science of man. It would then include sociology and every- 
thing else about man that could not be brought under the 



Political Economy and Other Sciences 121 

general designation social relations. Usually, however, the 
science studies prehistoric and early man, man in the lowest 
stages of his development, and discusses the dawn of civiliza- 
tion. It includes as one part of its field the economic life of 
prehistoric and early man. 

Law and Political Economy. — The relation of political 
economy to law is a close one, especially in our day, for polit- 
ical economy explains the reasons for a great part of the 
laws, their nature, and the principles which should control 
their development. Many of the subjects that belong to 
political economy belong also to law. Both treat of posses- 
sion, property, inheritance, sale and purchase, loans, gifts, 
wages, rent, taxation, combinations of labor and capital, and 
kindred topics. Political economy touches the innermost na- 
ture of legal questions. It might not be altogether inappro- 
priate to call political economy "the spirit of the laws," taking 
the name from Montesquieu's book which bears that title. 

As we have seen, political economy has been defined by de 
Lavelye in such a manner as to convey the impression that it 
has to do exclusively with legislation. This is certainly too 
narrow a conception; yet, if we think of live economic ques- 
tions, we shall find that they are, very generally at least, in 
part legislative questions. Topics such as the tariff, local 
taxation, the silver question, bimetallism, railways, child 
labor, and industrial training illustrate the connection. 

When we open a law book on real estate what is found? 
If it is an American or English book, there is probably very lit- 
tle save present legal facts. The law is thus and so, says your 
legal authority; nothing more. Political economy tells us 
how private property in land came to exist, and why it exists, 
and explains the reason why some changes in land laws 
should be made, and why some people think that these laws 
should be radically altered and private property in land, as at 
present understood, abolished, and why still other people 
reject this view. 

What has been said about real estate holds equally with ref- 
erence to laws of bequest and inheritance. No man is fit to 



122 An Introduction to Political Economy 

legislate on these subjects who knows nothing about political 
economy. Commercial laws and the laws pertaining to cor- 
porations can likewise never be properly handled without the 
aid of our science. 

Political economy is needed as a corrective of certain 
tendencies in the law. Private law has to do with individ- 
ual rights, and lawyers acquire a habit of looking at all 
questions from an individual standpoint. This becomes 
painfully apparent in reading English and American ju- 
dicial decisions. The rights of the people as a whole — that 
is, of the many — are too often overlooked for the sake of the 
interests of a few. We would be far from attacking the integ- 
rity of American and English judges. With comparatively 
few exceptions they have been men of blameless character. 
The trouble lies with their point of view, which naturally 
arises from an exclusive consideration of private law. Ev- 
ery judge is familiar with the bearing of legal questions 
on the private interest of individuals, but too often loses 
sight of the millions not present before him. If we go 
back to olden times or to foreign countries, about which 
our judgment is fairer, we can all see this tendency of law- 
yers as a class to sacrifice the many to the few. The common 
lands of India serve as an illustration. English lawyers could 
not grasp the fact of common property of a village in land, 
and so looked about for a private owner, and, mistaking a 
tax-collector for the proprietor, they made him a real pro- 
prietor. Thus the villages were robbed on account of legal 
incapacity on the part of judges to grasp the economic situa- 
tion. The same thing happened in England, as Sir Henry 
Maine, John Stuart Mill, and others have shown. The com- 
mon land belonging to English villages was allowed to be 
inclosed by lords of manors, and thus the property rights of 
the forgotten millions were again sacrificed. 

Private law is concerned with petty details, and attaching 
undue importance to them is apt to exaggerate the importance 
of mere legality, the letter and machinery of the law. Polit- 
ical economy gives large views and general principles. 



Political Economy and Other Sciences 123 

Voltaire called lawyers conservators of ancient abuses, and 
Professor Bluntschli speaks of law in itself without any cor- 
rective influence as "tending to the numbness of death," fail- 
ing "to keep step with the development of life." Eule by 
judges tends to petrifaction, and is conservatism of a revo- 
lutionary, because obstructive, type. Lawyers have doubt- 
less caused by obstruction many revolutions, and they can 
rarely reconcile themselves to great progressive changes such 
as the independence of the American colonies or the unity of 
Germany or of Italy until after these things have taken 
place. The reason is that they are always looking back 
to the past for legal precedent, never ahead, which begets 
a dangerous habit unless other tendencies are at work to 
correct, or perhaps more properly to modify, the force of this 
conservatism. Political economy is progressive, and helps to 
counterbalance a dangerous tendency toward revolutionary 
conservatism. 

Law is concerned with modern industrial life. To an in- 
creasing extent legal questions are becoming almost purely 
economic, as seen in boycott, blacklisting, conspiracy, and 
combination cases. Legislators make laws to apply to these 
cases; and judges, in their decisions, do not merely find the 
law — they make it. Recently in such cases American judges 
have been more active in legislation than have the legislators 
themselves. Indeed, it is the opinion of many publicists that 
any constitutional changes which are wrought hereafter must 
be made through interpretation, by our Supreme Court. Yet 
legislators, and to an even greater extent judges, are unfit to 
make decisions which will stand the test of time without a 
profound knowledge of political economy. It is with pro- 
priety, therefore, that France and Prussia require a knowl- 
edge of political economy in all candidates for admission to 
the bar, and that some of our best American law schools have 
rendered instruction in political economy at least accessible 
to their students. Such study should be a part of every law 
course, and every candidate for admission to the bar should 
be compelled to pass a thorough examination in political 
economy. 



124 An Introduction to Political Economy 

But political economists in turn need law. Perhaps no 
study is more useful to them. It is a splendid training for 
the mind. The material of law and political economy is the 
same, but in law we have a ripe experience of thousands of 
years in analysis, arrangement, and exact statement. It gives 
precise facts about present institutions. It shows the basis on 
which progress must build. It shows how deep are the roots 
of our present social order. It emphasizes the importance of 
the statics of political economy and corrects a tendency to- 
ward revolutionary rashness, which is the opposite of all true 
progress. 

We have been speaking of private law, which has to do 
with legal relations of private parties. We must now refer to 
public law, which is concerned with the relations of public 
bodies to one another, or with the relations of public bodies 
and private parties. Public law and politics constitute polit- 
ical science. Their relation to political economy is sufficient- 
ly obvious. Political economy places aims before political 
science, and political science strives to realize these along 
with its other ends. Constitutions, the highest expression 
of public law, must be made to conform to industrial con- 
ditions, and this conformity can be brought about only by 
political economy. The trouble with our American con- 
stitutions with respect to taxation, bankruptcy, and divorce 
and marriage — and divorce and marriage imply the 
weightiest kind of economic relations — is that they have 
not kept pace with economic changes. And the difficulty of 
securing such accordance is precisely the most serious danger 
of written constitutions. That is the weakness of our fed- 
eral constitution. Economic life changes continually, but 
the constitution is by many deemed practically unchangeable, 
except by interpretation. If that be so, the instrument can 
only with difficulty be made to conform to industrial life. 

A minor division of the general subject of law is inter- 
national law, which deals with the relations of sovereign 
states. This department of law is constantly increasing in 
economic importance. Economic relations are becoming in- 



Political Economy and Other Sciences 125 

ternational with a truly astounding degree of rapidity. Com- 
petition is international, and we have world markets for 
staples. Combinations of labor and capital are international. 
Government itself forms international postal and telegraph 
unions. Switzerland has formally proposed to other gov- 
ernments international factory legislation to protect women 
and children and other wage-receivers, so as to place manu- 
facturers in different lands on the same footing in compe- 
tition. A body of international law with effective means for 
its enforcement is needed for the organization and regulation 
and preservation of international economic relations. Never 
before to-day has the necessity been so great or so evident. 
In the stupendous world-struggle upon which the great civ- 
ilized nations have entered it will require the greatest wis- 
dom and humanity to prevent excesses of which our descend- 
ants would be ashamed. International peace congresses, 
international conventions, and a more powerful and more far- 
reaching code of international law will do much to regulate 
and keep within the bounds of moral conduct the strenuous 
activities of lusty and aspiring nations. 



Literature. — Bluntschli, Modern State (translation), 
chapter i of Introduction; Eeinsch, World Politics; Science 
Economic Discussion, article on "Economics and Jurispru- 
dence/' This pamphlet, though now out of print, is access- 
ible in most public libraries. 



PART n 
PRODUCTION 



Introductory 129 



CHAPTEE I 

INTRODUCTORY 

Utilities. — Man creates no new matter. Neither the farm- 
er nor the merchant adds one atom to the existing material 
of the earth. Yet they are both called producers, and prop- 
erly so. What, then, do they produce ? Simply quantities of 
utility. And how do they produce quantities of utility? 
Simply by putting things in places appropriate to that pur- 
pose. Man can only move things, and when he moves them 
in a suitable manner he creates utilities. "This one opera- 
tion/' says John Stuart Mill, in his Political Economy, "of 
putting things into fit places for being acted upon by their 
own internal forces and by those residing in other natural 
objects, is all that man does or can do with matter." 

It has seemed to some even among economists that the 
farmer is more truly a producer than the manufacturer, and 
the manufacturer than the merchant; but such is not at all 
the case. All of these industrial classes do the same thing. 
They produce utilities by changing the places of things. The 
farmer adds nothing to the material of the globe, but he gives 
direction to the forces of nature so that existing material 
becomes better adapted to the wants of man, and thereby 
more useful. He drops corn into the earth, and thereby puts 
it into a fit place for being acted upon by external natural 
forces. From time to time he removes weeds and throws 
earth about the stalk which grows up, and portions of earth, 
air, and moisture take new relative positions, and the result 
is again corn, and more corn. Changed places and natural 
forces have rendered things more useful. All this while man 
has done nothing but put things in fit places. 

The manufacturer changes forms and combinations of 
raw material by putting things into fit places, and he likewise 



130 An Introduction to Political Economy 

produces utilities by securing the aid of natural forces within 
and without the object of production. The merchant simi- 
larly takes things from places where they are less useful to 
places where they are more useful. He produces utilities as 
truly as does the farmer or manufacturer. It may well be that 
the utilities actually produced by the merchant could be pro- 
duced with a smaller expenditure of economic force than they 
are at present, and that saving could be secured by a better 
organization of the factors of production ; or it may be that at 
times the merchant has been able to secure a larger return 
for the production of a given quantity of social utility than 
has the farmer ; but all this is no justification whatever for the 
popular impression that he is less productive than any other 
person who is engaged in economic work. 

Production, then, means simply the creation of utilities by 
the application of man's mental and physical powers to the 
physical universe, which furnishes materials and forces. This 
application of man's powers is called labor. 

Those quantities of utility which result from labor are 
called economic goods, but not all economic goods are the re- 
sult of labor. Probably any reader of this book would call a 
vacant lot on Fifth Avenue in New York city a material good 
thing, even if no person has ever expended a day's labor on it. 
It is desirable at this point to have a clear idea of economic 
goods, and a definition is therefore offered. We will begin 
with the word good. Everything that satisfies a human want 
we call a good ; and here on the threshold of our science we see 
how absurd it is to say that politico-economic laws are inde- 
pendent of man, and would be what they are if man did not 
live on the earth. We cannot get half way through our defi- 
nition of economic goods before we have brought in the hu- 
man element. 

Goods we divide into the two classes of free goods and eco- 
nomic goods. The former are those which exist in super- 
abundance, and are offered freely to everyone without charge. 
Air and water are usually free goods, and in a new country 
even land is frequently free. 



Introductory 131 

Economic Goods are those goods which are usually and 
regularly obtained by man only by exertion, and which, or 
the use of which, may be disposed of for other goods. They 
may be further characterized as directly or indirectly ex- 
changeable for all goods which come on the market. With 
the idea of a money economy in mind, we may say that they 
are goods which exchange for money, or, in other words, goods 
which are bought and sold. 

A few points require further explanation. We have said 
that they are "usually" obtained by exertion. One may pick up 
a diamond or a nugget of gold upon which one has stumbled. 
Mere picking up of these articles cannot properly be called 
labor. Yet it must be remembered that the whole stock of 
gold and diamonds has cost an almost inconceivable amount 
of toil and privation and suffering. 

Again, we have said that the goods or their use may be dis- 
posed of for other goods. This enables us to include in our 
definition both material and immaterial goods. A person's 
technical skill, which is acquired only by labor and which 
is often very productive, is an example of immaterial goods. 
The central point of our science is the conception of man in 
his relations to material good things, but since man himself 
cannot be bought and sold, it does not seem practicable to 
exclude from the rank of economic goods utilities which are 
fixed and embodied in human beings. Once many men 
could be bought and sold, and they then took their place 
with horses and oxen among material goods. Now man may 
sell the use of his powers. It is hard to draw the line, but it 
may be done, with sufficient accuracy, by keeping in mind our 
central conception. We would not speak of the cultivation 
of our faculties, merely for the sake of our own better devel- 
opment, as economic exertion in any strict sense, although it 
might well have economic consequences. The economic life 
and its goods are subservient to man. We call the acquisi- 
tion of technical skill an economic process, because it has 
reference to the creation of utilities incorporated in material 
good things. The direct labor expended on matter we may 



132 An Introduction to Political Economy 

call a primary economic process, while that labor which pre- 
pares us to expend our augmented power on material things 
to render them useful, or more useful, we may call a second- 
ary economic process. There is a form of production in 
which economic exertions and noneconomic exertions meet, 
as in the case of the common school education of the young, 
which not only ministers to the full life of the students, but 
also promotes their economic efficiency. There are such 
border lines, where discrimination is difficult or impossible, in 
the natural sciences as well as in the social and mental sci- 
ences, but they need not as a rule occasion much difficulty. 

Wealth. — Political economists have usually called economic 
goods wealth, but this usage is open to the objection that 
wealth, in ordinary language, generally means large quanti- 
ties of economic goods, either absolutely, in proportion to one's 
wants, or, as is oftener the case, relatively, with reference to 
the possessions of others. Wealth is also often used to denote 
the economic goods belonging to an organized society of men, 
especially of a nation. In such a sense we compare the 
wealth of England with the wealth of France or Germany. 
We would hardly say that Germany is not a wealthy country, 
but, rather, not a rich country. Notwithstanding this am- 
biguity in the term, wealth has so generally been used for eco- 
nomic goods, and is so convenient a term — so much more con- 
venient than the larger term of two words — that it may not 
be possible, perhaps not even desirable, to displace it entirely. 
The two terms can be used interchangeably in many cases, 
care being taken to employ the expression economic goods 
wherever it will make our meaning clearer or help to avoid 
misunderstanding. 

The Individual and Society. — One distinction runs all the 
way through political economy — the distinction between the 
social and the individual standpoint. We have consequently 
to distinguish between social and individual wealth, for what 
is wealth to the individual is often not wealth to society. 

Illustrations of this fact are abundant. A mortgage is 
individual wealth, but if the claim it stands for is extin- 



Introductory 133 

guished, society is neither richer nor poorer. Similarly all 
state, municipal, and federal bonds represent claims on the 
industry of the people, and if all these bonds should be de- 
stroyed, the bondholders as individuals would suffer loss, but 
society as a whole would be neither richer nor poorer, and 
society, exclusive of the bondholders, would have gained at the 
expense of that class. 

Productive Elements often Overlooked. — It will be well 
at this point to call attention to some important facts which 
are frequently overlooked. A large part of production even 
now is household production, as it may be called, and is not 
designed for the market-place, which indeed takes no note of 
it. Every well-regulated household is an establishment where 
valuable things or quantities of utility are produced. Food 
is prepared for use, and prepared food is worth far more 
than unprepared, as we discover when we purchase it at a 
boarding-house, restaurant, or hotel. Often the prepared 
food sells for more than twice the cost of the unprepared food. 
Still other utilities are produced in the household. Clothing 
is prepared and repaired, comfortable shelter is afforded, and 
strength of body and mind of the chief productive factor, the 
human being, is nourished there. As Mr. Edwin Cannan, 
in his Elementary Political Economy, sa3^s, the labor of at 
least half of the women of a country "is expended in pro- 
ducing material good things for the use of the producers." 
Xow it is a fact that more than half of the human race in 
civilized nations is composed of women, and if it is admitted 
that women labor as long and as severely as men, it follows 
that a fourth of the labor of men and women combined is 
destined for the household and not for the market. But 
there is another part of the annual income of the country of 
which no account is taken in the ordinary money-estimates. 
Three fourths of the population of the United States is rural, 
and in the country a vast amount of material good things 
produced is destined for the household, and is rarely finan- 
cially estimated. Vegetables, small fruits — cultivated an d 
wild — butter, eggs, meat, fish caught in public waters, and 

10 



134 An Introduction to Political Economy 

game may be mentioned. Even wild nuts gathered are not 
altogether insignificant. Large as is this aggregate income 
which is wholly neglected or in any case very much under- 
stated in estimates of annual production, it is by no means 
all. Property yields an income by use. My own house when 
occupied by me as truly produces a part of my income as when 
I rent it to some one else, for in either case I receive simply 
a quantity of utility. Horses, carriages, wagons, furniture, 
books, works of art, and the like, all annually produce quan- 
tities of utility, and these often have a large market value when 
offered for sale. Yet these utilities, when produced by goods 
owned by those who enjoy them, largely escape valuation. 
All this will show how inadequate and even absurd are many 
current estimates of average per capita production of wealth. 

Misleading Comparisons between the Past and the Present. 
— Another important fact to be noticed in this connection 
is the misleading nature of ordinary comparisons between 
the wealth annually produced at the present time and the 
wealth annually produced at an earlier day, say fifty years 
ago. While household production is still important, it un- 
doubtedly has relatively diminished in importance. Produc- 
tion of things which are bought and sold in the market-place, 
and are consequently readily estimated in money, is con- 
stantly gaining in importance on household production of 
material good things. Hence annual production of material 
good things, or, broadly speaking, of economic goods which 
we estimate in money, increases more rapidly than does real 
annual production; and there is, consequently, a tendency 
always to exaggerate progress, and, indeed, to count as prog- 
ress some things which are retrogression. Should boarding- 
house and hotel life totally displace private housekeeping, for 
instance, it would increase the apparent annual production of 
wealth, while the real wealth of the country would be affected 
in no such degree. 

Census Estimates of Wealth. — What has just been ex- 
plained will prepare us to understand that all census returns 
of wealth are, in many respects, of necessity defective and mis- 



Introductory 135 

leading. The importance of the matter will justify a further 
study of the question. In the first place it mu§t be noted 
that census returns are made in money. Now N if com- 
modities are very abundant as compared with the stock of 
money and the activity of credit, the price will be low, while 
the real wealth of the country is great. Let us suppose that 
the quantity of cotton cloth of which account is taken doubles 
between two censuses, and that the price falls one half. The 
wealth of the country in this respect has apparently not in- 
creased at all, but in reality it has doubled, because wealth 
consists in quantities of useful things. In the second place, 
we must remember that the census includes forms of private 
wealth that are not public wealth, but which often resemble 
rather a taxing power. This is the case with many franchises 
recklessly granted to private corporations. An illustration will 
help to make the author's meaning clear. Baltimore street-car 
companies pay to the city for the maintenance of public 
parks nine dollars out of every hundred they collect in ad- 
dition to ordinary state and city taxes. The telegraph in 
other civilized countries than ours is public property, and can 
only be valued at the cost of the plant, land, buildings, etc., 
while in the United States there is an enormous additional 
valuation on account of the fact that the telegraph is private 
property, and that in the nature of things it is a monopoly. 
In this respect we are apparently far richer than countries 
like France and Germany, but again reality contradicts ap- 
pearance, for the census returns are misleading. Again, take 
the case of our post-office. It can figure in census returns 
only for actual value of its plant, while if it should be made 
over to a private corporation, it would soon have a capitaliza- 
tion of hundreds of millions of dollars. Apparently the 
wealth of the country would be increased, but really we as a 
people would be poorer, for we would be obliged to support an 
army of highly paid officials, a host of costly attorneys, and 
an expensive and demoralizing lobby, which would be em- 
ployed by the private company to shape post-office legislation 
for private ends. 



136 An Introduction to Political Economy 

Technical Terms in Production. — It may be well in this 
place to mention or explain some of the technical terms 
that are frequently used in discussions of topics bearing 
on production. Isolated production and social production, 
or domestic production and production for exchange, are 
terms which have already been explained in the previous part 
of this work. Individual production as differing from so- 
cial production will be understood from the discussion of this 
chapter. It must be remembered that individual production 
not infrequently is socially destructive, as when the proprietor 
of a gambling resort heaps up riches to the great demoraliza- 
tion and economic loss of society. The terms large-scale pro- 
duction and small-scale production occur so frequently in eco- 
nomic discussion, and are so plain in their meaning, that we 
need not dwell upon them here. 

Over-Production and TJnder-Consumption. — The purpose 
of production is consumption, and if more is produced, more 
must be consumed. Power to consume is measured by pur- 
chasing power, and power of consumption sets a limit to 
production. There is no such thing as general over-produc- 
tion, for it can never happen that more economic goods of all 
kinds will be produced than men really need to satisfy their 
legitimate wants. On the contrary, not enough has ever yet 
been produced for this purpose. Sometimes production does 
not go forward evenly, and there is an undue amount of labor 
and capital directed to certain pursuits, but until all men are 
well clothed, housed, and fed, and furnished with material 
appliances for their higher life, such as books, pictures, mu- 
sical instruments, and church buildings, it will be a manifest 
absurdity to talk about general over-production. When there 
is almost universal difficulty in disposing of goods which have 
been or are being produced, the real phenomenon is rather to 
be described by the term under-consumption. Men want 
these goods ; they are willing to give services in exchange for 
them, but they cannot dispose of their services directly, and 
consequently they lack purchasing power. A glut in the 
market always means under-consumption. It is one of the 



Introductory 137 

sad and curious features of the life of the modern economic 
society that its parts do not always fulfill their functions har- 
moniously; that often parts are more or less incapacitated 
and the body thus brought to a diseased condition. Some 
have supposed that luxury and extravagance are able to 
remedy gluts in the markets, but this is impossible. On the 
contrary, they frequently bring about a diseased condition 
of industrial society which leads to gluts. 

Relation of Production to Other Departments of Political 
Economy. — Production, taken in its widest sense, includes 
everything in political economy except consumption of goods. 
The acquisition and employment of goods embraces the entire 
economic activity of man. "Transfers of goods," which are 
for the most part exchanges, form one part of production. 
Distribution is in early stages of society nearly identical with 
production, and is so, to some considerable extent, even to- 
day. Thus, in the earliest stages of economic development, 
what a man produces constitutes his income. A man catches 
two fish in a day, and these are his income. It has been 
said by others that even in modern society there are no sep- 
arate organs of the economic body concerned with distri- 
bution. Distribution may in the main, perhaps, be said to 
follow naturally from the existing system of production. 
Yet this is not wholly so. Laws and institutions modify 
more or less consciously the distribution of wealth. For ex- 
ample, this is the avowed purpose of the French law of inher- 
itance, which divides the bulk of a father's property equally 
among his children, regardless of his wishes in the matter. 
Moreover, as production is at present carried on under our 
laws of property, many people who by their own efforts con- 
tribute nothing whatever to production enjoy a large amount 
of what is produced. 

Another part of the general subject, entitled finance, treats 
of the acquisition and employment of means by governments. 
But there are many peculiarities concerning the housekeeping 
of governments which render it advisable to treat this subject 
by itself, and not to distribute the matter among other main 



138 An Introduction to Political Economy 

parts of political economy. We have, therefore, adhered to 
the traditional distribution of the matter, admitting that it is 
not strictly logical to make the conventional divisions — pro- 
duction, distribution, transfers, consumption, and finance — as 
if these were equal in rank. It would be more logical, per- 
haps, to place transfers and distribution as sub-heads under 
production, but it would be a more cumbrous arrangement, 
and strict logic is therefore sacrificed to convenience. 



literature. — Mayo-Smith, Statistics and Economics; Meit- 
zen, History, Theory, and Technique of Statistics. 



Motives of Economic Activity 139 



CHAPTEE II 

MOTIVES OF ECONOMIC ACTIVITY 

Wants. — It may be said, in a word, that the wants of man 
supply his economic motives. This is a true statement, but it 
is too vague to be serviceable. Man's wants are of all kinds. 
They include pleasurable exercise of our faculties, the disci- 
pline of toil, the physical means for the support of one's 
own life, the physical means for the maintenance of the ex- 
istence of others, love, friendship, religion, and an infinite 
number of other wants ethically commendable or ethically 
censurable. No man, save a foolish or insane person, engages 
in economic activity except to satisfy some kind of want. 
There is a purpose in the action of rational men. We may 
speak about one's own individual wants, about the wants of 
other individuals, and about the wants of states. All of these 
orders of wants supply motives. 

Self-interest is one economic motive, and certainly a most 
powerful one. It is not the sole motive, and in itself it cannot 
explain the economic life of nations, as has been already seen. 
Self-interest acts differently under different circumstances. 
In India it will lead a man to do one thing, and in England 
perhaps quite another thing. But what do we mean by self- 
interest? Assuredly not always the same thing. Self-inter- 
est to a savage may mean simply the interest which he feels in 
himself directly and indirectly. With us it is taken for 
granted that a man's self-interest includes interest in his 
wife and children. Thus, when we say that a man is 
prompted in the business world by self-interest, we assume 
that his activity is directed to the benefit of at least his own 
immediate family. Self-interest thus includes a narrow circle 
when reduced to its lowest terms, and this fact shows itself not 
merely in using money earned, but in productive processes; 



140 An Introduction to Political Economy 

sometimes even unjustly, as when relationship unduly affects 
salaries, number of holidays, and other privileges. But the 
circle of self-interest is capable of indefinite expansion until 
within one's own personal interest come to be included those 
of a town, a county, a state, a nation. If self-interest be- 
comes so broad in its scope as to identify self with humanity, 
as now with one's family, we have Christian altruism. What 
is wanted, therefore, is not to abolish self-interest, but to 
widen the circle of its activity. 

Self-interest is not a bad thing. It is a good stimulus 
when it assumes its proper form. Self-interest is compatible 
with a generous consideration for the material welfare of 
others. I am one of mankind, and my love for humanity 
includes myself. If I neglect the care and development of 
myself, I injure humanity. The humanitarian spirit includes 
both self-love and love of one's fellows. But self-interest 
may become diseased, and then, placing self above others and 
neglecting others, it becomes selfishness, which an ethical 
teacher has called the true source of all sin. 

Patriotism is a motive to economic activity, and a powerful 
one, especially in times of great awakening of national spirit. 

The Christian Religion renders service a duty, and pro- 
nounces the man who lives in this world without rendering 
himself personally useful in the work of mankind a thief 
and a robber. It is a powerful economic motive, particularly 
in the highest natures. 

Self-interest, Public Spirit, Brotherly Love. — Professor 
Wagner, of Berlin, has from a somewhat different standpoint 
spoken of three principles in national economic life, to 
each of which he ascribes a special motive. One is the 
principle of individual and private enterprise, in which self- 
interest is dominant. The second is the principle of public 
activity — the social principle as opposed to the individual 
principle of private business. This second principle corrects, 
modifies, and rounds out the first. Private and public ac- 
tivity supplement each other. We have finally the third 
principle, that of brotherly love, the caritative principle. 



Motives of Economic Activity 141 

filling in gaps, supplying omissions, and mitigating the se- 
verities of individual and of public action. Self-interest, 
brotherly love, and public spirit are, then, three motives of 
economic activity, but they are not exclusive one of another. 
They pass gradually over into one another and are often 
indistinguishable. 

Love of Social Esteem. — When we pass in review these 
various motives we discover that the love of social esteem 
enters as a. profound element into every one of them. There 
is, in fact, nothing else that explains so large a proportion of 
man's social life in general and of his economic life in partic- 
ular. It is a certain and almost universal test of social- 
ization in the conduct of an individual and in the life of a 
community. It directs production and controls consumption. 
After the barest physical necessities of life have been satisfied 
— and even here it is largely a determining force — the love of 
social esteem exercises the most widespread and most power- 
ful influence in the life of man. It overcrowds the so-called 
genteel occupations to the starving point, and depletes the 
ranks of those whose employment is called menial. It in- 
duces the man who has painfully accumulated a fortune to 
spend it lavishly upon those things which he thinks will 
win him public favor. Lack of it or loss of it drives the des- 
perate into the ranks of criminals and voluntary paupers. All 
this brings sharply before us the mighty power for good or ill 
of public ideals of wealth acquisition and wealth expenditure. 

Commendable and Censurable Wants. — We may classify 
wants, further, into commendable wants and censurable wants. 
Wants which are satisfied by those things that serve as a basis 
for the full and harmonious development of our faculties are 
commendable wants ; wants which are satisfied by other things 
that are not positively helpful or are positively injurious are 
censurable wants. Wholesome food, comfortable clothing, 
commodious shelter, books, musical instruments, fine works 
of art, are all things which minister to commendable wants. 

luxury. — Luxuries are things which minister to such 
censurable wants as love of display, vanity, or the selfish desire 



142 An Introduction to Political Economy 

to exalt one's self above one's fellows. We generally think of 
luxuries as costly things, but a wanton and luxurious expendi- 
ture for dress may in a vain woman's lifetime amount to far 
less than the perfectly justifiable expenditures of her neighbor 
to promote in herself, her family, and others an appreciation 
and love of the beautiful. Proportionality is one element in 
determining whether a thing is a luxury or not. If the real 
gain to one's self corresponds to the outlay, it cannot be called 
a luxury. One test is to ask this question : "Would I myself, 
if normally constituted, obeying ethical principles, be willing 
to undergo the toil and sacrifice that the article has cost for 
the pleasure it affords f" The answer must be in the negative 
in the case of articles like Belgian handmade lace, which is 
the product of long, weary toil of poorly paid girls who often 
lose their eyesight in this work. Dr. E. W. Bemis, of the Bu- 
reau of Economic Kesearch, has characterized it thus : "Lux- 
ury is whatever contributes chiefly to enjoyment rather than 
to a better training of our powers. Luxury is defensible only 
in so far as it does not hinder the development of a better 
manhood in us and in all those whom we could influence." 

Public and Private Luxury. — The consideration of propor- 
tionality will show that expenditures for the public, either by 
the public or by private individuals, may have a justification 
which would be altogether lacking in the case of similar ex- 
penditures for private enjoyment. What is luxury for a pri- 
vate person is not at all necessarily luxury for the public. 
Grand public buildings, which lift up and inspire the peo- 
ple, magnificent art galleries, great universities, splendid 
common schools and academies, are excellent things, and the 
toil and sacrifice which they require are well repaid in the 
returns made in the higher and better life of the people. 
Wants to which these minister are among the best national 
wants. It must not be forgotten, however, that public ex- 
penditures may also be for luxuries. Such were the "panis 
et circenses," or bread and shows, which decaying empire 
threw as a sop to the Roman populace. It is only in a morally 
diseased condition of a people's consciences that lavish outlays 



Motives of Economic Activity 143 

will be approved for private individuals while parsimony is 
prescribed for the public. 

We occasionally hear private luxury defended by an argu- 
ment which is so manifestly weak that it scarcely deserves at- 
tention. It is said, "It gives opportunity to work." But 
manifestly the same expenditure for humanity would give an 
equal opportunity. 

Moralists, philosophers, statesmen, and religious teachers 
have all united to condemn luxury, and to it has very gen- 
erally been attributed the downfall of states. Among those 
who have spoken strongly on luxury we may mention Plato 
and Aristotle, all the Church fathers, Thomas Aquinas, the 
greatest of the mediaeval philosophers; Adam Ferguson, the 
Scotch philosopher of the last century, and M. de Laveleye in 
our own century. There can be no kind of doubt as to the 
teaching of Christianity on this subject. We may roughly di- 
vide those things which we want into necessaries, comforts, 
conveniences, and luxuries. We satisfy our own wants in the 
order named. Manifestly we are not even making an effort 
to love our neighbors as ourselves when we indulge in luxuries 
while our neighbors lack the necessities, comforts, or even con- 
veniences of life. 

literature. — M. de Laveleye, Luxury, in the Sonnenschein 
Social Science Series; the same author, an article on "Mor- 
als of Luxury," in the Popular Science Monthly for March, 
1881 ; also in his Elements of Political Economy, Book IV, 
chapter ii, section 1; Sidgwick's History of Ethics, chapter 
iii, for a discussion of the ideas of the early Church on lux- 
ury; Roscher, Political Economy, Book IV, chapter ii (trans- 
lation) ; Veblen, Theory of the Leisure Class; article entitled 
"Some Aspects of Luxury," in the North American Review 
for February, 1 889, by Professor F. S. Baldwin ; The Liquor 
Problem, a volume prepared for "The Committee of Fifty," 
by Frederick H. Wines and John Koren ; "Economic Aspects 
of the Liquor Traffic," the twelfth annual report of the 
« United States Commissioner of Labor for 1897-8. 



144 An Introduction to Political Economy 



CHAPTEE III 

THE FACTORS OF PRODUCTION 

There are three factors of production, of which two, nature 
and labor, are primary and original, and the third, capital, is 
derivative and secondary. We will consider these briefly in 
the order named. 

1. Nature. — The part played by nature in production has 
already been discussed at some length in Part I of this book, 
where it was explained that nature is one of the two main 
factors which make up the national economy, the other being 
the factor man. We include under nature all natural forces 
used in production, as the wind, the movement of water, at- 
traction of gravitation, and cohesion. Many of these things 
furnished by nature are free goods and not economic goods. 
Nature, economically considered, is generally called simply 
land, because, of those things belonging to external nature, 
it is with land that we have principally to do in political econ- 
omy. It must, however, be observed that the word land in 
this use has a very broad meaning, and includes what is below 
the surface of the earth, and water so far as it is appropriated 
by private parties ; and also, in some respects, the entire sur- 
face of the earth. This factor is in early stages generally 
common property, but in later stages of life it has been pri- 
vate property, and a return for its use has been secured by 
private individuals, or, in some cases, by the public, when 
owned by the public and leased to private parties. The re- 
turn which land in itself, apart from capital or labor, yields, 
is called rent. This is pure rent, or economic rent, which is 
a different thing from rent as ordinarily understood, for rent 
in popular usage includes recompense for the other factors 
of production, as in the case of the ordinary tenant farmer, 
whose rent includes interest on the capital invested in the 



The Factors of Production 145 

farm buildings, in fences, and in land improvements. Pure 
rent can best be observed in cities, where it is the annual 
value of lots on which buildings stand. A large portion of 
the land of Baltimore, Philadelphia, and London is owned 
by men who do not own the buildings and other improve- 
ments, but who receive from owners of improvements an an- 
nual rent. 

Land renders three services to production. In the first 
place it gives a "standing place or standing room." It is 
something on which we can rest and move about while con- 
ducting productive processes. Mere space in itself is often 
extremely valuable, as can be seen in the case of city real es- 
tate; and as population is rapidly growing, and as a contin- 
ually increasing proportion of the population dwells in cities, 
this service rendered by land is constantly becoming more im- 
portant, and the return in rent will probably augment rapidly 
for a long time to come. In the second place, land contains 
the elements needed by plant-life, and thus serves agriculture. 
We call this property of the soil its fertility. Finally, land 
contains natural products below the surface of the soil, such 
as coal, natural gas, petroleum, iron, gold, silver, and other 
metals. These are the natural treasures of the earth. Man 
does not create them nor give direction to nature in their for- 
mation. It has seemed to some nations unfair that these 
natural treasures should become the property of individuals, 
and such nations have treated them as a common heritage, ex- 
acting a rent or royalty for the opportunity to appropriate 
them. This is perhaps generally the case on the continent of 
Europe, but English law, with its inclination to exaggerate 
private rights, established the principle that he who owns the 
surface owns downward to the center of the earth, and up- 
ward to the sky. It is a peculiarity of land that its quantity 
cannot be increased appreciably, and thus it is sometimes 
spoken of as a natural monopoly. This use of the word mo- 
nopoly, however, seems hardly accurate. True, land is a lim- 
ited factor, but there is no inevitable tendency to monopoly 
in the ownership or management of it. 



146 An Introduction to Political Economy 

2. Labor. — Labor is the second of the two primary factors 
in production. It is service supplied by human beings, and 
is essentially different from other goods in that it is always 
connected with a personality. 

Moral and intellectual qualities influence its productive- 
ness. Temperance, trustworthiness, skill, alertness, quick per- 
ception, a comprehensive mental grasp, all these and other 
good qualities belonging to the soul of man are of chief im- 
portance in man. His mere physical strength in itself is a 
poor thing, being surpassed by that of many of the lower ani- 
mals ; but man is far more productive, and even in the days of 
slavery, sold for far more than did an ox or even a horse. 
The economic value of intellectual training is generally not 
sufficiently appreciated. It has been ascertained that, with no 
noteworthy exceptions, the higher in any part of the United 
States is the per capita expenditure for schools the higher is 
the average of wages, and the larger, consequently, the pro- 
duction of wealth in that section of the country. 

Growth of Population. — The supply of labor is increased 
with the growth of population, and to this there is no absolute 
limit save the means of subsistence. Fear has been expressed 
that growth of population may outrun the food supply. Mal- 
thus, a great English economist of the beginning of the cen- 
tury, advanced a theory of population which has since been 
called, from his name, Malthusianism. It is simply this : popu- 
lation tends to increase in geometrical progression, while the 
best we can hope is that food supply will increase in arithmet- 
ical progression; consequently, if there were no check to the 
natural increase of population, men would in a short time 
starve to death. But there are checks to the growth of popu- 
lation, and these are of two kinds, positive and preventive. 
Positive checks are those which keep down population by kill- 
ing off people, and include plagues, pestilence, intemperance, 
vice, crime, and war. Preventive checks are those which keep 
down poulation by preventing the birth of an undue number 
of people, and include prudence in contracting marriage and 
actual abstinence from marriage. These are checks of a moral 



The Factors of Production 147 

character. Men who are conscientious will not marry until 
they feel that they will probably be able to support a wife and 
bring up children worthily. As population becomes denser 
the moral restraint postpones marriage, and as the age at 
marriage increases the average number of births will decrease. 
In fact, statistics show a great relative proportion of children 
born to parents under twenty-five. Innumerable customs ex- 
ist all over the world, especially in older countries, which 
operate to postpone the age of marriage, and these tend to 
prevent an undue growth of population. The only practical 
conclusion which Malthus drew from his doctrine was this : 
let no one marry until he has a reasonable prospect that 
he will be able to support and bring up a family of the 
average size. He wished to intensify the feeling of parental 
responsibility. 

At the present time nothing more in the way of restraint 
to population seems necessary in the United States than to 
keep from our shores the lowest classes of foreigners and to 
exercise generally in the matter of marriage and procreation 
that prudence which has long characterized the really best 
classes of American society. Nevertheless, it must be ad- 
mitted that by no human possibility can population long con- 
tinue to increase in the United States as it has done in the 
past, for in a comparatively short period there would not be 
standing-room on the surface of the earth for all the people. 
Our population has during the decade 1890-1900 been in- 
creasing at a rate which, if continued, would result in a 
doubling of the population in less than forty years. If it 
continues to increase at this rate, or at any rate which is ob- 
tained by constant multiplication of the number at one period 
to produce the number at the regular successive period, we 
have a geometrical progression. The population is now about 
seventy-six millions. Two hundred fifty years is a short pe- 
riod in the world's history, but if the increase should con- 
tinue at the present ratio, our population at the expiration of 
that period would exceed the present population of the entire 
earth. 



148 An Introduction to Political Economy 

The almost magical potency of a geometrical progression 
has been shown more clearly still in the following illustration, 
borrowed from Marshall's Economics of Industry * Let us 
suppose that there are only two people on the face of the earth, 
and that population doubles only once in fifty years. At the 
expiration of three thousand years the whole surface of the 
earth — land and sea — would be covered with people piled one 
on top of the other eight hundred deep. 

Manifestly the present rapid rate of increase of population 
cannot continue forever ; yet the fact does not cause great un- 
easiness. It has been urged by some writers that as man de- 
velops intellectually, and as civilization becomes more highly 
organized and complex, human fecundity will decrease and the 
growth of poulation will become slower. Others think that 
prudential and moral restraints will be ample to prevent an 
undue increase of population. 

The chief cause for anxiety lies in the fact that for some 
reason or other it seems to be more difficult for a large pop- 
ulation to live peaceably together under present industrial 
conditions than for a small one. There is ground for the 
anticipation that the growth of population will test the 
worthiness of our civilization to endure, as other causes have 
tested older civilizations. We may be sure that if there is a 
moral governor of the universe, modern nations, like ancient 
nations, will be called upon to show their fitness to survive. 
Every time the sun rises it looks upon a larger population 
than ever before in the United States, and consequently upon 
a more complex industrial civilization. A mighty force is 
at work, day and night, night and day, never ceasing, thrust- 
ing upon us more and more serious social problems. These 
problems can never be solved by the policeman's club or the 
soldier's bullet, for this quiet onmoving force laughs such 
repression to scorn. Only righteousness can solve them, for 
only in righteousness is there power to enable us to adjust 
ourselves to our new environment. 

* The reference is to the early edition by A. & M. P. Marshall. 



The Factors of Production 149 

3. Capital. — Capital is the third factor in production. It 
is not one of the two first things in political economy, but it is 
a combination of these two. Much in the same way that 
oxygen and hydrogen combine to produce water, so land and 
labor together produce capital. Capital is neither land nor 
labor, but, resulting from the two, it is a new thing and has 
properties of its own. Capital is every product used or held 
for the purpose of producing or acquiring wealth. There are 
two elements in this conception : first, that of storcd-up goods, 
and second, that of use in the future. 

It is often said that capital is the result of saving, but this 
statement is misleading. Saving as such is a merely negative 
act and cannot produce any positive result. We must have 
something to save — that is, we must first produce — and then 
over and above the necessities of life there must be a surplus ; 
if this is laid by or saved, it may become capital. 

The aid which capital renders to production is essential to 
any production of economic goods save the most primitive and 
limited. It is, as the Austrian economist, Professor von 
Bohm-Bawerk, well says, "the medium through which the two 
original productive powers exert their instrumentality." It 
consists of those things which are used in further production, 
or which are technically spoken of as being in the process of 
ripening, whereas a store of wealth actually ready for con- 
sumption would be designated simply as consumption goods, 
and not as capital. It means a surplus, and this surplus 
renders possible an effective combination and organization of 
the productive factors. Nothing is more disastrous than to be 
obliged to work to-day for the food of to-day. When this is 
necessary no systematic activity is possible, for we must seize 
the first opportunity which offers to get food, however misera- 
ble that food may be. Wealth accumulated — including con- 
sumption goods and capital — means that we can postpone 
consumption, working to-day for the food supply of some fu- 
ture day. We can thus organize productive forces, we can 
survey the field of industry and secure the best place to apply 
these forces. We can put in our seed-corn and wait until it 
11 



150 An Introduction to Political Economy 

produces sixty or a hundred fold instead of wandering 
through the woods for uncertain game, which when taken is 
slaughtered, and, losing its power of increase, renders no whit 
easier the problem of producing to-morrow's supplies. The 
exact function of capital in production may be expressed 
in these words: It enables men to substitute roundabout 
methods for direct ones, by furnishing the tools for such 
production and by permitting the lengthening of the interval 
between effort and final effect or consumption. Eoundabout 
methods of production are almost without exception more 
efficient than direct ones, but roundabout methods require an 
increase in tools or machinery and a longer time. As is ex- 
plained in another place, capitalistic production, as it becomes 
more perfect, shows a continual increase in the number of 
steps between the initial movement and the final product, and 
a continual increase in the length of the interval. The 
lengthened interval is usually a necessary condition of the in- 
direct processes. Capital claims and receives a part of the 
product, which is called interest. Often we speak of profits 
in this connection, but when profits include more than inter- 
est they embrace something else besides the simple return on 
capital. 

Social and Individual Capital. — We must always distin- 
guish between what is capital to the individual and what is 
capital to society; that is, between social and individual 
capital. Only socio-economic goods, or material goods and 
accumulated personal products of past toil, can be regarded 
as social capital. Bonds, mortgages, and all evidences of in- 
debtedness are no part of social capital, but they are indi- 
vidual capital. Franchises are no part of social capital ; they 
are simply permission to make use of existing social capital, 
or to create social capital. The capital of society is 
not diminished when the value of corporate property, such as 
railways, telegraphs, and telephones, is reduced to a fair valu- 
ation upon the basis of the actual social capital invested, It 
may or may not be morally right, it may or may not be legally 
possible in any concrete case to equalize social and individual 



The Factors of Production 151 

capital; only the particular circumstances surrounding that 
case can determine. In any event, it is important for clear 
economic reasoning to keep in mind the distinction. 

Capital and Consumption Goods. — Not all accumulated 
wealth is to be regarded as capital. Capital goods are goods 
of the second order. Their value passes over into goods of the 
first order, which we may call use or consumption goods. 
Food and clothing ready for use and in the hands of the users 
are primary goods. They have reached their destination and 
are not to be looked upon as capital. 

Fixed and Circulating Capital. — It has been common 
among economists to further classify capital as fixed and cir- 
culating. Circulating capital is capital which can be used 
only once, or in one round of operations. Its entire value 
passes over into the product. Fixed capital, on the other 
hand, is capital which lasts for a succession of operations, and 
only a part of the value of which passes over into the product 
with each use. Coal used in a blast furnace and the raw ma- 
terials in manufacture are examples of circulating capital; 
the coal-cart in which the coal is hauled is fixed capital. 

Wealth Saved by being Consumed. — Wealth, although con- 
sisting of saved products, is itself consumed. When food is 
used for productive purposes it is consumed as truly as when 
used for present enjoyment. Let us suppose that I can raise 
a certain amount of produce on my farm. I may, if I choose, 
raise necessaries and also delicacies, and consume all that I 
raise. But let us suppose, instead, that I raise only neces- 
saries, and that while I raise twice as much food as I can use, 
I give half of my produce to a man who constructs a barn for 
me. I have accumulated capital, but the consumption of 
food has not been diminished thereby. Obvious as. this is, it 
is not understood so generally as it should be. There is a 
widespread impression that it is better for a man to spend his 
substance in riotous living than to save it ; but the man who 
builds houses makes as large purchases as he who expends the 
same sum in feasts, and society is richer because of the latter 
consumption; the houses still remain. 



152 An Introduction to Political Economy 

Increase of Capital. — Capital is a growth, and, as a return 
is exacted for the use of it, capital begets capital, as it were. 
This makes it far easier for a man who has capital to accumu- 
late more of it than for a man who has no capital to accumu- 
late any at all. "Unto everyone which hath shall be given; 
and from him that hath not, even that he hath shall be 
taken away from him." So intimately is present capital con- 
nected with past capital that, as some one has well said, there 
is not a nail in all England which could not be traced back 
over eight hundred years to savings made before the Norman 
Conquest. 



Literature. — Mill, Political Economy, Book I, chapter x; 
Spencer, Principles of Biology, chapter xii of Part VI; Ged- 
des and Thomson, Evolution of Sex, Part IV. 



Organization of the Productive Factors 153 



CHAPTER IV. 

ORGANIZATION OF THE PRODUCTIVE FACTORS 

Early Simplicity. — The organization of the factors of pro- 
duction, simple at first, becomes on the whole continually 
more complex with the development of industrial civilization. 
Differentiation accompanies development. The old house- 
hold economy was organized in such a manner that the exist- 
ence of three separate factors in production is scarcely per- 
ceived. The same man was owner of land, labor, and capital, 
and all the products flowing into his hand were distributed by 
him among those who participated in production according to 
the manner which he might deem proper. Where production 
is carried on by a village community we have collective own- 
ership of the instruments, management by a common author- 
ity, and a division of products according to regulations based 
on custom. The products are not divided into parts corre- 
sponding to the factors of production, but the same man re- 
ceives in every case wages, rent, interest, and profits. It is, in 
fact, only recently, with a new organization of industry which 
separates these factors and assigns them to different indus- 
trial classes, that the factors of production have become com- 
monly recognized as distinct either in production or in the 
distribution of products. Even to-day this separation is not 
effected in a large portion of the industrial field, and, con- 
sequently, there is not in such industries that antagonism 
among classes which is elsewhere observed. The American 
farmer in our Northern states is usually at the same time 
landowner, capitalist, laborer, and manager, and receives rent, 
interest, wages, and profits, and in the total product cannot 
distinguish one from the other. yj 

The Guilds. — The old guild organization of industry and 
commerce united the factors of production in the same man. 



154 An Introduction to Political Economy 

The guild of the Middle Ages embraced apprentice, journey- 
man, and master, and regulated industry and commerce under 
governmental supervision. The master managed the busi- 
ness, owned the capital, and worked with his own hands. He 
received the entire product of the business after supporting 
the apprentices and paying his journeymen. Apprentices and 
journeymen were, it is true, wage-earners, and conflicts about 
wages not infrequently arose, although for long periods har- 
mony prevailed, particularly during the best days of the 
guilds. Labor, it is true, was in a measure separated from 
other factors, but the separation was by no means complete, 
and the man who supplied labor looked forward not without 
reason to the time when he in his turn should become capital- 
ist, employer, and manager. This advance was a regular part 
of the guild system. 

Growth of Complexity. — The present century has wit- 
nessed a great change in the organization of the productive 
factors, especially in commerce, manufactures, and transpor- 
tation. We have a large class that furnishes only labor, an- 
other class that furnishes land and capital, and a third class 
that organizes and manages the undertaking. A modern rail- 
way corporation serves as a good illustration. The holders 
of stocks and bonds furnish capital on which they receive in- 
terest ; the stockholders carry on the business through mana- 
gers, and for this service they hope to receive a surplus above 
interest, called profits; labor is remunerated by wages and by 
salaries. Land is supplied by the holders of the stocks and 
bonds, a part of their capital being exchanged for land, and 
consequently we have rent also, although it does not usually 
appear as a separate factor. Yet even land when it is leased 
may appear as a separate factor. No doubt railways in Bal- 
timore and Philadelphia pay ground rents, annual returns for 
land itself, to those who do not own the improvements. We 
observe then all these various classes, and perceive that the 
product or revenues of the undertaking are divided into a 
corresponding number of portions. It can readily be under- 
stood how controversy respecting the amount to be allotted to 



Organization of the Productive Factors 155 

the different classes can arise.. It is said that the business 
community is always in debt, because it carries on business 
with more or less borrowed money. The owner of a busi- 
ness enterprise is an organizer and manager, and receives 
wages of superintendence, a salary which he pays himself; he 
receives a return for risk; he pays interest and receives in- 
terest on any money he has invested ; he pays wages and rent. 

The Entrepreneur. — The one who manages business for 
himself was formerly called an undertaker or an adventurer, 
but the first word has been appropriated by one small class 
of business men, and the latter has acquired a new meaning, 
carrying with it the implication of rashness and even of dis- 
honesty. We have consequently been obliged to resort to 
the French language for a word to designate the person who 
organizes and directs the productive factors, and we call such 
a one an entrepreneur. 

The function of the entrepreneur has become one of the 
most important in modern economic society. He has been 
well called a captain of industry, for he commands the indus- 
trial forces, and upon him more than anyone else rests the re- 
sponsibility for success or failure. A business which has 
achieved magnificent success often becomes bankrupt when, 
owing to death or some other cause, an unfortunate change in 
the entrepreneur is made. The prosperity of an entire town 
has sometimes been observed to depend upon half a dozen 
shrewd captains of industry. It may be said, then, that the 
large reward these often receive is only a legitimate return for 
splendid social services. Such is the case, provided that this 
reward is gained honestly and without oppression. Some- 
times, indeed, their gains are in part legitimate and in part 
illegitimate. It is this mixture, observed by all in notorious 
cases, which has probably more than anything else led to in- 
discriminate attacks on the profits of the captains of industry. 
It must be added that the mere fact that a man has gained an 
enormous fortune legitimately, and as a return for social serv- 
ices, does not morally entitle him to use it as he pleases, for 
morally a man is obliged to use everything he has, himself in- 



156 An Introduction to Political Economy- 

eluded, for the benefit of humanity, and if he has great power 
to gain wealth, this but measures the extent of his moral, 
though not of his legal, obligation to society. 

The productivity of industry depends largely upon the har- 
monious development of all the factors. Sometimes labor is 
specially needed, sometimes capital, sometimes land; most 
frequently what is needed above everything else is a better 
organization of them all. As a whole, organization to-day is 
defective, and talent for organization and management is 
unfortunately rare. 

The Division of Products. — The more efficient all the fac- 
tors, the greater the product to divide ; but the share of each 
factor will depend upon the industrial strength of the class 
which supplies it as compared with the industrial strength of 
those who control the remaining factors. One great element 
in strength is what we may call "staying-power." The one 
who can wait while the other is being brought under the pres- 
sure of necessity makes the best terms in the division. It is 
on this account that labor organizations spring up. Capital 
being necessarily united under one management, labor seeks 
to put itself under one management that it may gain like 
staying-power. An important element in determining stay- 
ing-power, and thus industrial strength, is the relative rate of 
increase of the factors. If the labor supply is increasing 
with relatively greater rapidity than capital, it will be obliged 
to seek capital instead of waiting to be sought. Labor or- 
ganization, since it does not directly increase capital supply, 
cannot in itself correct this difficulty except through its pos- 
sible influence in restraining undue increase of population. 
Capital organization enables capital to exploit the unfortu- 
nate position of labor. If, however, capital supply is abun- 
dant and labor scarce, capital must seek labor, and organiza- 
tion here enables a factor to gain the full advantages of a 
favorable situation. If the land supply does not keep pace 
with the growth of the other factors, it can force them to 
give a large share of the product for rent. Better means of 
communication and transportation have in recent years enor- 



Organization of the Productive Factors 157 

mously increased the available supply of agricultural land, 
and agricultural rents have therefore fallen. The supply of 
city land, on the other hand, has not increased equally with 
demand, and in consequence of this, urban rents have in- 
creased enormously all over the world, owners of building 
sites favorably situated in large cities often obtaining a large 
proportion of the entire product of the business carried on in 
buildings erected on such sites. 

There are those who claim that the recent concentration of 
industry, the result of what is popularly designated as the 
"trust movement," has decreased even urban rents. It is 
urged that fewer mercantile buildings are needed in propor- 
tion as competition in various lines diminishes, and that mo- 
nopolistic manufacturing concerns are frequently transferred 
from the large to the small city. It is further argued that the 
tall buildings, popularly known as "sky-scrapers," have econo- 
mized the use of land and have further reduced urban rents. 
Preceding and accompanying this movement has gone an ex- 
tension of urban rapid transit facilities, which has encouraged 
suburban residence. The reduction of rents that can be 
shown in some American cities within the last ten years is 
remarkable. Cincinnati, in particular, may be cited as an 
example. Have we here to do with a temporary phenomenon 
or with one which will long persist ? The answer to this ques- 
tion cannot be attempted in this place, but the problem is both 
theoretically and practically one of the most interesting that 
now confront us. V 

Division of Labor. — A characteristic feature of the organ- 
ization of the factors in the present stage of industrial enter- 
prises is what is commonly called division of labor, but which 
might with equal propriety be called cooperation of labor. 
Productive processes, especially in manufactures, are divided 
into minute parts, and one part, or perhaps two or three very 
small parts, are given to each laborer. Thus, one man makes 
one little part of a watch, another a second part, and there 
are so many little parts that to organize properly a watch- 
making establishment requires the cooperation of at least 



158 An Introduction to Political Economy 

three hundred persons. There are sixty or seventy distinct 
branches in the manufacture of a piano, and as many in the 
manufacture of a boot. But if there is division of labor, there 
is equally cooperation of labor. The parts divided must be 
united to form one whole. When the phrase division of labor 
is used we look at one side of the process; when we use the 
word cooperation we are looking at the matter from the op- 
posite side. I Division of labor, machinery, and the use of 
natural powers form the chief part of the explanation of the 
marvelous increase in the productivity of the productive fac- 
tors. So great is that increase that one man in our day can 
accomplish tasks that formerly occupied ten, one hundred, or 
even a thousand men. When several men work at one com- 
pleted product in such a way that each individual is employed 
upon some separate piece of the whole, we have what has been 
called complex division of labor. When, on the other hand, 
the single process is one which calls for the joint action of two 
or more men, as in the case of two men hammering the same 
heated iron, we have what has been called simple division of 
labor. 

Territorial Division of Labor. — There is one special form of 
division of labor which has received the name territorial. We 
have already given many instances of this form. Certain 
Southern states are able to produce cotton at a special advan- 
tage ; the Northwest has a similar advantage in the growing of 
wheat; western Pennsylvania finds her most profitable in- 
dustry in the mines; western New York has certain areas 
specially adapted to the culture of the grape; Cuba has sur- 
passing opportunities for the raising of choice tobacco; the 
Philippine Islands are favored by nature in the article of 
hemp ; northern Wisconsin has been a center of an unusually 
rich timber growth; Alaska is a most fruitful field for gold 
mining ; and so we might extend the list indefinitely. Passing 
from country to country, we would find the same or even 
greater specialized local advantages. In all such cases, through 
the greatly increased facilities for transportation, men of the 
various sections are able to devote the greater part of their 



Organization of the Productive Factors 159 

energies to the products for which those sections are peculiar- 
ly adapted. This division of labor, by which industries are 
specialized in certain localities or nations, we call territorial 
division of labor. If the different sections compared lie in 
different nations, the term international division of labor is 
also applicable. 

Advantages of Division of Labor. — It will be profitable for 
us to analyze somewhat closely the advantages of division of 
labor. First of all, division of labor secures a gain of time. A 
change of operations by the individual laborer in his work 
costs time. Under a proper system of divided labor less 
time also is consumed in learning one's business, as the 
labor of each is more simple. In the second place, greater 
skill is acquired, because each person confines himself to 
one operation and in that becomes remarkably proficient. 
In the third place, labor is used more advantageously. Some 
parts of an industrial process can be performed by a weak per- 
son, while others require unusual physical strength ; some re- 
quire extraordinary intelligence, while others can be performed 
by a man of very ordinary intellectual powers. Each one is so 
employed that his power is more completely utilized, and work 
is found for all, young and old, weak and strong, stupid and 
intelligent. Again, inventions are more frequent under a 
system of division of labor, because the industrial processes 
are so divided that it is easy to see just where an improvement 
is possible. Moreover, when a person is exclusively engaged 
in one simple operation he often reflects on it and comes to 
understand it thoroughly, and to see how the appliances which 
he uses could be improved. Laborers have made many im- 
portant inventions. Finally, division of labor makes possible 
a better utilization of capital. Each worker uses one set of 
tools or one part of a set, and keeps them employed all the 
time. When each laborer does many things he has many more 
tools, and some are always idle. 

Disadvantages. — The disadvantages of a division of labor 
should also be noticed. The system makes it possible to employ 
women and children, and the proportion of men employed 



160 An Introduction to Political Economy 

consequently decreases. Child labor and labor of women often 
displace that of men, so that in American cities one sometimes 
finds fathers at home keeping house while children and wives 
are at work in factories. The home is thus demoralized, and 
the rising generation is likely to become weak in body and 
mind and depraved in character. 

The dependence of man upon man is increased in the man- 
ner previously described, and this is frequently, at least in 
part, an evil. Moreover, an international dependence arises 
which occasionally produces intense suffering. The so-called 
"cotton-famine" in the north of England during the Ameri- 
can civil war illustrates this possibility. America grew cot- 
ton, England manufactured it, and this seemed to work well 
until it became impossible for England to secure the cotton 
supply from our South. The result was intense suffering of 
hundreds of thousands of working people, who were in no- 
wise responsible for the distant war. 

Laborers are often rendered helpless on the occasion of a 
change of production, having learned to do only one thing, 
which is now no longer required, and having become too old 
to acquire a new skill. Dickens describes evils of this kind 
in his Hard Times. 

When labor is rendered simple it often loses both its attract- 
iveness and its educational value at the same time. A man 
can love his work when he manufactures a whole watch, bear- 
ing the impress of care and skill ; but who can love the mere 
routine of raising a sledge-hammer and letting it fall for ten 
hours a day? M. de Tocqueville, in his Democracy in Amer- 
ica, attributed the high average intelligence of Americans to 
the fact that labor, when he wrote, was not so divided with us 
as elsewhere. 

Remedies for the Evils of Minute Division of Labor. — 
Education, particularly industrial training and popular work 
like that in which Chautauqua is engaged ; labor organizations, 
with their debates and discussions ; political life, with univer- 
sal suffrage ; and increased leisure, these are all means where- 
by the evils of division of labor may be obviated or lessened. 



Organization of the Productive Factors 161 

When labor becomes soulless, ceasing to minister to fullness 
of life, increased opportunities for development outside of the 
industrial field must be offered. Hours of labor must be 
shortened, but not necessarily to the same extent in all fields 
of labor. A clergyman or professor finds opportunities for 
the harmonious development of all his faculties in his occupa- 
tion, and the reasons for a short labor day which apply to 
factory operatives do not exist in his case. 

Increased Productivity. — The tremendous increase of pro- 
ductive power, due to division of labor, has often been esti- 
mated more or less accurately. It has been said, for example, 
that modern inventions and discoveries in the great civilized 
nations have rendered possible and actual a productive power 
for each family of five persons equivalent to the labor of sixty 
slaves in classical Athens. Now the civilization of Athens 
was based on slavery, and it is estimated that there were 
twelve slaves to a free Athenian family. Natural forces, 
therefore, if we may accept this estimate, do for us five times 
as much as slavery did for the classic city. 



Literature. — Wright, Practical Sociology, chapter xiv; 
United States Department of Labor, thirteenth annual report 
on "Hand and Machine Labor/' 



PART in 

TRANSFERS OF GOODS 



Introductory 165 



CHAPTEE I 

INTRODUCTORY 

Transfers of goods are of two kinds. They may be either 
one-sided transfers, as in the case of taxes, inheritance, gifts, 
bequests, and fines, or they may be two-sided transfers, as is 
the case with nearly all the economic transfers with which we 
have to do. 

Transfers of goods constitute a large part of our economic 
life. The business of one important industrial class, called 
merchants, consists in effecting such transfers. The opera- 
tions in which merchants are engaged we call commerce. 
But commerce requires a multitude of other businesses to assist 
it, among which are especially prominent the means of 
communication and transportation, such as public roads, ca- 
nals, railways, telegraphs, telephones, and banks. These agents 
of commerce do not confine their functions to the assistance of 
merchants, but they aid the entire community in bringing 
about desired transfers of goods. 

Exchange. — The part of political economy which deals with 
transfers is usually called exchange, because by far the greater 
number of transfers are two-sided, and it is with these two- 
sided transfers that we are especially, though not exclusively, 
concerned in the chapters which in the present work are placed 
under the title "Transfers of Goods." Taxes, the chief kind 
of one-sided transfers, are more conveniently treated under 
the topic of finance, while bequest and inheritance may be 
better discussed under distribution, which is so powerfully 
affected thereby. Money and banks, however, which are 
treated in the present part of this book, are agencies for assist- 
ing in one-sided transfers as well as two-sided transfers of 
goods. 

Utility. — First of all in discussing the subject of exchanges 
12 



166 An Introduction to Political Economy 

we have to do with utility, and it will therefore be well to re- 
peat what has been said in other parts of this book, and to add 
to it certain considerations which we must bear in mind in 
studying the principles of exchange and of value. Utility 
means a power to satisfy a human want, or it may mean the 
quality of an object which satisfies the want. And here we 
may pause to repeat that it is still a utility whether the want 
which it satisfies be a censurable or a commendable one. Men 
often want many things which they were more truly happy 
without. Tobacco and whisky satisfy wants as certainly as 
do wheat and shoes, although those who want the former 
would in most cases be healthier and happier were the wants 
unsatisfied. 

To proceed to an analysis of our wants, we may say that we 
have first of all a desire for such things as air, sunshine, and 
water. But all of these are usually so abundant that we are 
scarcely conscious of our vital need of them. They are un- 
limited in quantity or amount, and are supplied to us without 
effort on the part of ourselves or of others. 

A second class of wants includes all such good things as 
esteem, friendship, love, respect, and spiritual contentment. 
Now these do not usually exist in such abundance as we would 
wish, and we do have to put forth effort to acquire them. But 
we feel at once in thinking of them that they are not economic 
goods. No one ever speaks of them as being exchangeable, 
nor do we ever think of comparing them with things having 
economic value, excepting in such figurative expressions as "A 
good name is better than riches." The wants which we feel 
for love and friendship are not economic wants. 

The third class of wants includes those which we call eco- 
nomic. The things which we want exist in quantities so 
limited that some wants are left unsatisfied, and usually 
require effort of one sort or another to obtain them. More- 
over, they are commonly exchanged. It is with the satisfaction 
of this third class of wants that value has to do. The things 
that satisfy these wants have both utility and value. 

This analysis, then, brings us to the idea of value, and gives 



Introductory 167 

us one difference between value and utility. We have seen two 
large classes of things which possess immeasurable utility, but 
which do not have value, in the economic sense of the word. 
We have said immeasurable utility, and the very fact of the 
utility being immeasurable or unmeasurable helps to dis- 
tinguish such things from things having value, for things 
having value possess measurable utilities. We measure such 
utilities a thousand times a day, usually in terms of money. 

But the difference between value and utility is something 
more than this. What is it that gives value to some things, 
while other things are not said to have value? One of the 
most common answers to this question is that labor gives 
things their value. But careful thought will show that this 
answer is unsatisfactory. We do not care for things simply 
because they have cost labor. Men do not pay tens of thou- 
sands of dollars for the paintings of Rubens or Murillo be- 
cause those paintings cost labor. It is not because a piano 
has cost labor that it has value for me. When we examine the 
matter closely we find that the order is exactly the reverse. 
Labor was put upon the piano because a manufacturer, judg- 
ing from well-grounded experience, believed that it would 
have a certain value. If piano manufacturers should make a 
mistake and should produce so many pianos that the value 
would be less than had been calculated, the labor expended 
upon them would either not be properly requited, or would 
have to be paid from the value of other goods. 

Professor Knies has claimed that it is merely a fallacy of 
logic to contrast value and utility, as we have done in the 
cases of the first and third classes of goods. We have said 
that water is useful, but, because unlimited in quantity, not 
valuable, while iron is both useful and valuable. Professor 
Knies says that in this case we are unconsciously confusing 
terms ; that when we say water is useful, but not valuable, we 
are thinking of the entire quantity of water, or of water gen- 
erally, while when we say that iron is useful and valuable we 
are thinking of limited portions of the entire quantity. So 
when we say that iron is more useful than gold we have in 



168 An Introduction to Political Economy 

mind the entire stock of each metal, but when we say that 
gold is more valuable than iron our thought has passed from 
the general to the special, and we are now thinking of equal 
quantities by weight or bulk. 

Professor Knies has undoubtedly called attention to an 
actual fallacy of thought which is very common, but even 
when we make the necessary correction we shall find that the 
distinction between utility and value still exists. For the ex- 
planation of value, as it is understood to-day, we are indebted 
to Professor Jevons, of England, and to the Austrian econo- 
mists, who have been laboring in this field during the last 
quarter of a century and more. It is fortunate for the Eng- 
lish reader that the work of these last-mentioned writers has 
been explained by Professor William Smart, of Glasgow, Scot- 
land, in a volume bearing the title, An Introduction to the 
Theory of Value. Moreover, some of the original books have 
within recent years been translated into English. 

Value, as we have seen, depends upon wants. But, as we 
have also seen, value is often low when utility is very great. 
In general the two rise and fall with very little, if any, refer- 
ence to each other. There is plainly a connection, but just 
as plainly a difference. The connection is so apparent that 
we need not dwell upon it. The difference remains to be 
explained. 

Let us consider again the illustration of water. Physical 
scientists tell us that the quantity of water on the earth's sur- 
face is in one way and another very slowly but gradually be- 
coming less. Suppose, then, that after the lapse of mil- 
lions of years only enough water remains to satisfy the 
thirst of the inhabitants of that day. Manifestly, they will 
not use any part of the water for such purposes as lawn sprin- 
kling, and they will be driven to some expedient to take the 
place of bathing as we practice it. In such a case the utility 
of the water will be the actual saving of life, and therefore 
impossible to estimate. Such utility Professor Patten has 
called absolute utility, indicating by the word absolute that it 
cannot be compared, except in thought, with any other utili- 



Introductory 169 

ties. If it were to be exchanged. for anything else, life itself 
would cease. 

Move backward now the hand of time, and consider a period 
preceding that which we have just been contemplating. The 
water will still be limited, but there will be a quantity suffi- 
cient, let us say, to admit of bathing. The utility of any por- 
tion of the water will be just as great as in our first illustra- 
tion, but no greater. It will satisfy life. True, the whole 
body of water will possess greater utility, but it is not that of 
which we are speaking. What, then, will measure the value of 
any portion of the water ? Men will not dwell in their valua- 
tions upon what the existing supply will do for them, but upon 
the satisfaction which might be obtained from an increase. 
Thus we may imagine a man of that time saying : "There is 
water enough to drink, and enough for personal cleanliness, 
but if there were a little more, I would like to use it for 
sprinkling my lawn." What valuation, then, will he place 
upon a definite portion of water? It might seem, as it 
has seemed to many, that the value will be determined by 
the last want satisfied by the water. But the author believes 
that this answer is incorrect, though, so far as the practical 
measurement of the value is concerned, the error is a slight 
one. Eather will our imaginary earth-dweller measure the 
value in such a case by the intensity of that want which with 
the existing supply he finds just beyond the reach of satisfac- 
tion. If that want be lawn sprinkling, then to him the value 
of any portion of the water will be measured by the satisfac- 
tion which he would experience from seeing his lawn look 
bright and fresh. 

If we imagine time to roll backward, we shall see men 
gradually satisfying more and more wants, but always wants 
less and less intense, until we come to a time when man has no 
want for water which cannot be satisfied. There is no want 
calling for satisfaction, and consequently there is no value in 
any increment or increased portion of supply. But as one 
portion of the supply will have for him the same utility as has 
any other, he will place no value upon water at all. And thus, 



170 An Introduction to Political Economy 

after our long journey in time, we have traveled backward to 
the present. At one extreme of our journey we have found 
water so valuable that it could not be measured, and now on 
our return to the present we find water without value, though 
all along our way its utility has kept on increasing. 

One or two further illustrations from a condition of things 
which is more real to us, and we shall be prepared for a defi- 
nite statement of a law of value. Dutch East India merchants 
are said to have occasionally dumped into the sea a part of the 
cargo in their ships, which were returning loaded with Eastern 
spices. They had learned that with the existing supply in 
the market for which they were bound, their cargoes, if all 
were sold, would prove an unprofitable venture. Why ? Be- 
cause the good burghers of Amsterdam would find the stock 
of spices so large that they could not use it all. They would 
value any portion of the spice by the satisfaction they would 
lose in foregoing the use, and, the amount being so great, the 
intensity of the desire and of the satisfaction would fall almost 
to the vanishing point. The merchants, therefore, rather than 
confer so great a benefit upon their fellow-burghers, would 
heave overboard a part of the cargo, and the unsatisfied wants 
of the citizens would be sufficiently intense to create a profit- 
paying value for the products of the East. 

The author has a friend who relates that he has seen his 
neighbors carrying away to a creek-side load after load of po- 
tatoes, there to lie and rot. So great was the supply of 
potatoes in the market for which they — these neighbors — had 
been laboring to produce, that the marginal utility of potatoes 
had sunk to zero. The labor of removal had to be incurred, 
not for a positive advantage, but for the negative one of pre- 
venting the danger to health which would have existed in the 
near presence of the decaying vegetables. Surely, in this case 
the labor expended did not measure nor create the value, or 
rather lack of value, of the product. 

These illustrations will have prepared us for the definitions 
which follow. The total utility of a commodity is measured 
by the intensity of all the wants that it satisfies. The value 



Introductory 171 

of a commodity, on the other hand, is measured by the in- 
tensity of the want which the existing supply of the commodity 
leaves still unsatisfied. Having in mind the consideration 
that unsatisfied wants always take the form of desires, we may 
define utility and value thus : Utility is the capacity to satisfy 
wants; value is the capacity to excite desire. 

Thus far we have been speaking of the value of any unit of 
a commodity. The total value of the commodity, it will read- 
ily be understood, is equal to the number of units multiplied 
by the value of a single unit, since, according to what has been 
called the law of indifference, no unit of any commodity will 
have a greater value than any other unit, assuming equal 
utility. 

Certain other definitions remain to be given. Wealth is an 
aggregate of economic goods. When we estimate wealth ac- 
cording to values, there may be two statements of national 
wealth, which are directly opposed one to the other. Goods 
may be abundant and values low, or goods may be scarce and 
values high. The result in either case may be the same 
amount of value, though obviously the total utility is much 
greater in the first case than in the second. 

Economic well-being is an aggregate of utilities. In other 
words, it is an aggregate of satisfied desires, not at all an 
aggregate of values. 

Price is an expression of value in terms of money. When 
we say that a certain hat is worth three dollars to us, we mean 
that the marginal utility of the hat — that is, the satisfaction 
which we would miss without the hat — is at least as great as 
the marginal utility of the three dollars — that is, the satisfac- 
tion of which we would deprive ourselves if we parted with 
the three dollars. 

Elementary Value, Form Value, Place Value, Time Value. 
— Writers on political economy have distinguished various 
kinds of value, of which the following are specially important : 
elementary value, form value, place value, time value. The 
first term refers to value of raw material, or fundamental ele- 
ments. It is with the production of this value that agriculture 



172 An Introduction to Political Economy 

and other branches of extractive production, like mining, are 
concerned. Form value is due to form and shape given to raw 
material. It is this kind of value that manufacturers produce. 
Time value and place value are values due to the fact that 
goods are in the time or place where needed. It is the mer- 
chant who produces these kinds of values. He adds properties 
to goods ; namely, the property of being in the right place and 
of being there at the right time. 

Values in exchange are merely relative, and consequently 
there can be no such thing as a general rise or fall of values in 
this sense. Let us suppose that to-day two bushels of wheat 
exchange for three bushels of oats, and to-morrow for four. 
We may say that wheat has risen in value, but it is obvious 
that exactly in the same proportion oats have fallen in value. 

Demand and Supply are expressions constantly used in po- 
litical economy as well as in practical life. It is said that de- 
mand and supply regulate price, but clear ideas do not usually 
accompany this expression. Supply and demand are con- 
stantly varying quantities of things. An increased demand 
may lead to increased supply, but, on the other hand, an in- 
creased supply not infrequently goes ahead of actual demand 
and increases demand. The supply at a given moment may 
be a fixed quantity, but what is the demand ? It is defined as 
being desire accompanied by purchasing power. Thus one 
may want a thing never so much, but if he have not the power 
of purchasing it, he cannot at all increase the demand for that 
article or service. This demand fluctuates continually. At 
one price demand may fall far short of supply; at another 
price it may far exceed supply and eventually bring about an 
increase in supply. Demand and supply tend to equality, and 
this tendency operates through price. Prices are lowered and 
raised in such a manner that a rough kind of equilibrium be- 
tween supply and demand is brought about. 

Forces Which Influence Demand and Supply. — But there 
are all sorts of forces at work back of demand and supply, 
making these what they are. Anyone who stops at demand 
and supply as a final explanation has failed to go below sur- 



Introductory 173 

face phenomena. Laws and customs all affect demand and 
operate on supply. Has religion anything to do with de- 
mand? Certainly. Thanksgiving Day increases the demand 
for turkeys, and Easter increases the demand for eggs. Re- 
ligious holidays also affect the labor supply. These holidays 
were so numerous in Brazil some years ago that the national 
economy was injuriously affected, and through the efforts of 
the emperor they were greatly reduced in number. Labor or- 
ganizations and other organizations of productive forces try 
to regulate supply and demand in a manner beneficial to them- 
selves, and this is often, though not always, in a manner 
beneficial to the general public. To withhold supply for a 
time from those demanding it tends to raise prices, while to 
press it upon them leads to "slaughter prices." What we may 
technically call an "urgency" of supply and "urgency" of de- 
mand are then important elements in determining prices. 
Fashion suddenly increases and as suddenly decreases demand, 
and by its rapid changes produces general economic loss. In- 
heritance and bequest affect demand and supply through their 
action on the distribution of wealth. Indeed, the same is true 
of the effect of all laws concerning property. When the great 
bulk of national resources is widely distributed so that many 
have a competence, while but few have great wealth, the de- 
mand for commodities and the supply of commodities to 
satisfy this demand will both be of a very different character 
from the demand and supply of a place or period in which a 
large proportion of material wealth is in the hands of a few. 
In the former case there will be a large production of com- 
forts and conveniences with resulting general well-being, as in 
the best days of the Roman Republic, while in the latter case 
there will be wanton luxury, laboriously supplied, as were the 
feasts of the Roman emperors, by searching sea and land for 
things difficult to obtain. This wanton luxury in Rome, so 
finely satirized by Juvenal, was accompanied, as it must ever 
be, by loose morals and decay of civic virtues, while the mag- 
nificence of the few contrasts vividly with the beggarly wretch- 
edness of the depraved masses. 



174 An Introduction to Political Economy- 

Back of demand and supply lie other forces which must be 
taken into account. Disposable surplus must be considered, 
since the amount one will pay for a commodity or service must 
depend in part upon the amount which one can pay. Again, 
we must carefully study the elements of thrift, industry, and 
intelligence which increase demand, but which at the same 
time, by application and by improvement, increase supply 
with less actual outlay of economic goods for the attainment 
of a given result. 

Cost of Production. — When production of commodities can 
be indefinitely increased, as is the case with cloth, stoves, man- 
ufactured articles generally, and also agricultural produce, 
the cost of production is the factor among those acting on the 
surface of industrial society — that is to say, leaving out the 
deeper causes — which, apart from temporary fluctuations, 
regulates price. There is a price which will recompense the 
various productive factors. Production is carried on so long 
as that price for commodities can be obtained. If demand for 
any commodity admits at any time of a higher price, this is 
followed by increased production, provided always that the 
movements of labor and capital are free with respect to the 
branch of production concerned, and so far as labor and cap- 
ital are thus free to move. If price falls below the point neces- 
sary to remunerate the factors, production will fall off, pro- 
vided that capital can be withdrawn from the pursuit without 
large proportional loss. Leaving out of view deeper causes, 
we may say, then, that the price of freely produced goods de- 
pends immediately on demand and supply, and secondarily, 
and in the long run, on cost of production, provided we have 
free competition — that is to say, provided that the flow of 
labor and capital is unobstructed. 

The reconciliation of this explanation with the marginal 
utility theory lies in the fact that cost of production in these 
cases determines what wants may be satisfied and what wants 
must remain unsatisfied, and thus gives us a point of marginal 
utility. If cost of production falls, supply will increase and 
marginal utility will fall. We thus find that for practical 



Introductory 175 

purposes we may say, in the case of freely produced goods, that 
cost of production determines value, although, scientifically 
speaking, the final cause of value is the quantity of utility at- 
tributed to the most intense want left unsatisfied by the supply 
at any time existing. 

Freedom of Competition. — But we must observe this phe- 
nomenon, that precisely at the present time, owing to com- 
binations, and owing to the growing importance of monopolies 
in an ever-increasing proportion of the industrial field, the 
movements of labor and capital are not free. We have then 
in such cases monopoly prices, prices which do not de- 
pend on cost of production, but which are fixed at the 
most remunerative point. If price increases, demand falls; 
if price is lowered, demand increases. Intelligent monopo- 
lists will fix prices at that point which will yield the largest 
net returns. A great fall in the prices of service rendered by 
monopolists — street-car corporations, for example — will often 
be followed by such an increase of demand for services that net 
returns will increase. This fact brings about limited but in- 
sufficient control of monopolies. 

Social and Individual Cost. — Cost of production must be 
viewed in two aspects : the social and the individual. The cost 
of production to society consists in the totality of its efforts 
and sacrifices ; to the individual producer it consists in what is 
paid for these efforts and sacrifices. What is the cost to so- 
ciety of a house? It is the days of labor and the materials 
used, with wear of tools and implements, or, in other words, 
the services and things which have been consumed. These are 
real wealth, and society has suffered a loss unless at least an 
equivalent amount of utility is represented in the house. 
These services and things have been diverted from other pos- 
sible uses. The individual cost to me, if I purchase the house, 
is what I pay for it — say five thousand dollars, — but society is 
neither richer nor poorer because that sum of money has been 
transferred by me to a builder. That is an individual trans- 
action. Social cost is what Adam Smith calls the "real cost" 
of production. 



176 An Introduction to Political Economy 

Fair Price. — A conception of fairness is powerful in its in- 
fluence upon prices. During the Middle Ages the Church and 
also the public authorities attempted to regulate all prices by 
ideas of fairness. Fair price — justum pretium — was the 
economic topic which was perhaps most discussed for cen- 
turies, and in the writings of the most renowned of the phi- 
losophers of the Middle Ages, Thomas Aquinas, we find fair 
price treated with great learning and in all its details. Ex- 
communication was not regarded as too severe a penalty for 
violations of fair price. Even to-day, as has been stated in an- 
other place, Irish land courts fix fair rents. And even to-day 
city authorities and state authorities fix fair prices for many 
services, such as the street railway service, gas, and railway 
transportation of goods and passengers. When public author- 
ities furnish commodities and services they try to fix price by 
considerations of fairness. Similarly, university trustees try 
to pay fair salaries to college professors, and the fees charged 
by lawyers and professional men are discussed with reference 
to their fairness, being pronounced by public opinion now 
fair, now unfair. 



Literature. — Clark, Philosophy of Wealth, chapters v and 
vi ; Hobson, Economics of Distribution; Marshall, Principles 
of Economics: Smart, Introduction to the Theory of Value; 
von Bohm-Bawerk, Positive Theory of Capital; Ely, Monopo- 
lies and Trusts. 



Money 177 



CHAPTER II. 

MONEY 

There are three different conceptions of money — the popu- 
lar, the legal, and the economic. 

The Popular Conception. — What do people mean in every- 
day language when they use the word money ? Careful atten- 
tion to usage shows that they apply this term to anything 
which freely passes from hand to hand as a medium of ex- 
change, and also is, as a rule, received in payments of debts. 
We have here two separate functions, but it is probable that 
in modern times popular language would not apply the term 
money to anything which did not have both of these functions. 
This gives us then the following definition of money in the 
popular sense : Money is whatever passes freely from hand to 
hand as a medium of exchange and is generally received in 
final discharge of debt. 

The Legal Conception is different. Whatever the law de- 
clares a legal tender is money in the legal sense. A legal 
tender is that which, in the absence of contracts to the con- 
trary, the law compels persons to receive in payment of debt. 

The Economic Conception. — But political economists have 
framed still a third definition of money, which expresses what 
we may for lack of a better term call the economic conception. 
Money in the economic conception must perform four func- 
tions, which will be discussed in the following sentences. First 
of all, it must serve directly and immediately as a measure of 
value. But value measures value as length measures length. 
We must take as a unit a definite concrete value like that of 
our gold dollar, which consists of 25.8 grains of gold, nine 
tenths fine — that is, nine tenths pure gold and one tenth alloy. 
When, now, we say that a commodity is worth nine dollars, 
we mean that its quantity of value is nine times that of our 



178 An Introduction to Political Economy 

"unit of value-measurement." Consequently money in this 
sense must be composed of material which is in itself valuable. 
In the second place, money must serve as a medium of ex- 
change. This is the principal function of all kinds of money. 
Commodities are not usually exchanged directly for one an- 
other, but indirectly through the medium of money. The 
farmer selling his corn for money, and with this money buy- 
ing sugar, really exchanges corn for sugar, the money serving 
merely as a convenient medium. In the third place, money 
in the economic sense must serve as a means of making pay- 
ments, and this is usually facilitated by having a legal-tender 
quality attached to it. Payments are often one-sided trans- 
fers of goods, and on that account the third function differs 
somewhat from the second. A fourth function is recognized, 
which is that money in the economic sense must serve as 
a store or receptacle of value. It must store up value so 
that it can be transported from place to place and transferred 
from time to time. Eoman gold money, preserved for two 
thousand years, has brought value down to our own time; 
and gold money taken across the Atlantic bears with it stored- 
up value. We have then the following as our formal defini- 
tion: Money, according to the economic conception, must first 
serve directly and immediately as a measure of value; sec- 
ondly, it must serve as a medium of exchange; in the third 
place, it must be capable of serving as a means of making pay- 
ments; and fourthly, it must be a store or receptacle of value. 

These distinctions render it easy to answer otherwise per- 
plexing questions. Are national bank-notes money? In the 
popular sense, undoubtedly, but not in the legal sense nor in 
the economic sense. Are "United States notes" money? Yes, 
in the popular and legal sense, but not in the third sense. 
Gold money in the United States is money in every sense of 
the word. 

Advantages of Money. — Money has been called one of 
man's greatest inventions, ranking with the alphabet. Cer- 
tainly present civilization would be impossible without it. 
Its services are so obvious, however, that it is not necessary to 



Money 179 

dwell upon them. The reader has only "to look and see." 
Exchange would be awkward and tedious without money, and 
now that labor is so divided, exchanges form a part of our 
daily life. We enjoy few material good things which have not 
been exchanged in one way or another many times before they 
reach us. Without any medium of exchange the man with a 
horse who wanted a coat instead would be obliged to hunt for a 
tailor who desired a horse, and even after finding him the ex- 
change would very likely be defeated in his object, owing to 
inequality in values of the articles to be exchanged. The coat 
desired might be only half as valuable as the horse, and the 
tailor might have nothing else which was wanted by the owner 
of the horse. Simple illustrations like this might be multi- 
plied indefinitely. We can also keep values easily in mind and 
compare them readily when we have one common measure. 
Money enables us to travel, carrying stored-up value with us, 
and assists in the accumulation of capital by providing, as it 
were, a receptacle for it. If we raise more potatoes than we 
need, we can keep them only a short time, but we can exchange 
them for money, which can be kept, and thus we save our 
surplus. Money is a form of capital which has been called 
free. It can by exchange be turned hither or thither, being 
ready for the best use which may offer. 

Qualities Desirable in Money. — Many things have been 
used as money during the world's history. Among them may 
be mentioned the following: cattle, nearly everywhere; furs, 
especially in northern countries; oil; wampum, among the 
early New Englanders; tea, at Eussian fairs; tobacco, as in 
Maryland and Virginia; iron; copper; all the baser metals; 
and the two precious metals, gold and silver. Among all the 
metals, gold and silver have in civilized nations been found 
best adapted for money, and they are so used to-day in every 
part of the globe. But, in this general struggle for existence, 
if we may use this figurative expression, gold has seemed to 
show a special fitness, and thus bids fair to survive as the 
money-metal par excellence. Nevertheless, silver is still every- 
where used in large quantities, but generally, among advanced 



180 An Introduction to Political Economy- 

nations, it occupies a subordinate position. There are several 
reasons why gold and silver are especially suitable for money- 
metals. They are universally desired, and everyone is there- 
fore willing to accept them. They can be used not only in the 
arts, but for ornaments, and this helps to give them stability of 
value, for if their value begins to fall, the demand for them 
for other purposes than money tends to increase, and this 
prevents so great a fall in their value as would otherwise 
take place. Gold and silver are desirable as money on 
account of the vast quantities already in existence. The 
gold in coin and bars and the silver in coin are now esti- 
mated to be worth between eight and nine thousand millions 
of dollars, and compared with this the yearly production is 
small, amounting at present to about four hundred millions 
of dollars. The production of one mine in one year, even if 
extraordinarily large, produces a comparatively small effect. 
The high specific value of gold and silver — that is, their high 
value in proportion to weight — adapts them to use for money, 
because it renders great value easily transportable. Their 
value at different places widely separated is thus more nearly 
equal than it could otherwise be. Their durability and inde- 
structibility are also valuable qualities, while their extreme 
divisibility without loss of value makes it possible to measure 
any desired value, great or small. Their malleability renders 
coinage easy, and their homogeneity makes any one ounce or 
pound just as valuable as any other ounce or pound. More- 
over, they are readily recognizable by their color, their pecul- 
iar ring, and by other attributes, and thus they are adapted 
to popular use. No other metals seem to combine in like 
measure so many desirable qualities. 

Paper Money has been extensively used. Paper money con- 
sists of promises to pay on demand, which people are willing to 
receive in place of metallic money. They are usually promises 
either of banks or of governments. People take them because 
they believe the promise will be kept, or because they think 
that others will accept them, or because they have been made 
a legal tender, and people must therefore accept them for 



Money 181 

debt, unless otherwise specified by contract, or because, as is 
the case with most kinds of paper money, they are receivable 
for taxes. Where this confidence in paper money is complete, 
such money is preferred to precious metals, because more con- 
venient. If anyone will read all that is engraved on the paper 
money circulating in the United States he will perceive its 
nature, and he will discover that it is of two general kinds: 
notes of national banks and notes of the federal government, 
with, however, several different species of the latter. Adam 
Smith has compared paper money to a road through the air. 
It saves the use of the precious metals, and thus capital, which 
would otherwise be employed as a medium of exchange, can be 
used for other productive purposes. It is thus, he says, as real 
a saving as if we could travel through the air and use for 
agriculture and other purposes the ground now occupied by 
roads. The old "greenbacks," or the United States notes, now 
amount to over three hundred and forty-six millions of dol- 
lars. They perform some of the functions of gold and silver 
even better than do gold and silver themselves — in foreign 
ports, like Hamburg, often selling for a premium — and thus 
save the country this amount of capital. To withdraw them 
from circulation would be simply a waste, unless they have 
harmful effects partly or wholly counterbalancing the advan- 
tages cited. 
t><Jnflation. — Certain dangers which are connected with 
paper money issued by government must not be overlooked. 
It is easy to set the printing-presses at work and to issue an 
unlimited amount of money. This is, apparently at least, 
much easier than taxation, and the temptation thus offered 
has often promoted waste and extravagance. Besides, only a 
limited amount can be kept in circulation at its nominal value, 
and when this amount is exceeded the paper money falls be- 
low "par," which means that paper money will no longer 
purchase as much as will the same amount of gold and silver 
money. Such depreciation produces great inconvenience and 
suffering, because, by a process which we cannot stop to con- 
sider, the inferior money drives the better out of circulation, 
13 



182 An Introduction to Political Economy 

and prices rise, as expressed in terms of the depreciated money. 
This diminishes the value of fixed salaries, of all fixed in- 
comes, of interest-payments on all debts, and of wages. True, 
salaries and wages tend to rise again to the old level, but the 
rise is a slow one at best, and meantime the standard of living 
is likely to be so reduced as to impair the economic efficiency 
of the wage-earner. Inflation, with the resulting depreciation 
of money, is an inconvenience in the international trade, be- 
cause one nation does not recognize the legal tender quality of 
another nation's paper money and will not receive it for taxes, 
and because foreigners lose faith in a paper money which is 
not kept at par with the precious metals. 

The Amount of Money Needed. — The question has often 
been asked, How much money does a country need ? And the 
answer has sometimes been given, "It makes no difference how 
much money there is. If the supply is abundant, prices will 
be high ; if the supply is small, prices will be low and the same 
amount of money will go further. A little money will do the 
work of money as well as a large supply." It is true that 
there is a relation between the supply of money and its value, 
although this relation is by no means simple, but rather ex- 
tremely intricate ; and it is true that, other things being equal, 
large supply means small value, and small supply, large value ; 
but the conclusion which was drawn from these facts in 
the above answer does not follow from the facts them- 
selves. When the amount of money is small, barter is al- 
ways extensively used, and this is an inconvenience, ob- 
structing trade and causing loss. There should be a sufficient 
stock of money to effect all those ordinary transactions of 
life for which credit instruments are not readily avail- 
able, and to enable us to avoid any extensive employment 
of barter. But one of the most common business trans- 
actions is the payment of wages. Money should exist in 
such quantities that it will not be too valuable to use for that 
purpose ; in other words, the day's labor of an ordinary laborer 
should not be inferior to the value of a piece of legal tender 
coin which can be conveniently carried. We need, then, 



Money 183 

money in such quantities that the value of a coin of convenient 
size shall not exceed a day's wages of an unskilled laborer. 
But it is desirable that money should be still cheaper, so that 
wages may be divided into parts. It is not necessary for 
money to be cheap enough to enable us to make our smallest 
purchases with full legal tender money, since in addition to 
full legal tender money all countries have subsidiary coins, 
like our fractional parts of a dollar. These contain less coin 
in proportion to their nominal value than do the full legal 
tender coins, and are legal tender only for a small amount — in 
the United States, for instance, only for payments up to ten 
dollars. There are also minor coins, such as our "nickels" 
and "coppers," which are legal tender for still smaller 
amounts — with us, for instance, they are legal tender only up 
to twenty-five cents. Silver dollars fulfill the conditions laid 
down as to convenience for wages, but gold does not. Gold 
is more convenient for large payments. The two supplement 
each other. 

Fluctuations in the Volume of Money. — The grounds just 
given for the need of a certain amount of money, to be 
determined by circumstances, are not the only considerations 
to be kept in mind in determining the amount of money re- 
quired by a country. After the above requirement has been 
satisfied it may make comparatively little difference whether 
we have much or little, but it makes a great deal of difference 
whether we increase or decrease the amount. It is not the 
"much or little," but it is the "more or less," that is of vital 
concern. Few things produce more intense suffering than 
does a marked increase in the value of money. This is on 
account of the strong tie which connects past, present, and 
future in our economic life. He who treats every economic 
question as if every day were a period of time apart by itself 
has scarcely taken the first step toward the comprehension 
of economic society. Obligations have been incurred in the 
past which are payable in the present or in the future. Now, 
to decrease the amount of money, other things remaining 
equal, raises the value of every debt and adds to the burden of 



184 An Introduction to Political Economy 

every debtor, public and private. It increases the value of 
notes, mortgages, railway bonds, and local, state, and federal 
bonds. It enriches the few at the expense of the many. An 
increase in the amount of money, if it is small, does not have 
the reverse effect, because on account of the growth of wealth, 
the continually diminishing use of barter, and the extension 
of trade into countries formerly outside of international com- 
merce, and the opening up of new countries in Africa, Aus- 
tralia, and elsewhere which need a supply of money, the value 
of money tends to augment unless there is at the same time a 
growth in the suppty. If the amount remains stationary, 
while, as always happens in a growing society, the demand 
increases, the creditors are enriched at the expense of the 
debtors. On the one hand, if the amount of money is arbi- 
trarily increased, so that the value of all debts falls, it amounts 
to virtual robbery of the creditors. When, on the other hand, 
the amount of money is decreased arbitrarily, it amounts to 
virtual robbery of the debtor class. 

The late President Walker reached the conclusion that 
while it is dangerous to increase the supply of money arbi- 
trarily, as by the issue of paper, it is a fortunate thing if the 
amount of money slowly and continually increases without 
direct governmental action, as, for instance, through the dis- 
covery of new and more fruitful gold mines. His reason for 
this is that the business community is always a debtor com- 
munity^, while the idle classes are creditors, and that a slight 
depreciation in the value of money which results from natural 
causes, and which consequently does not destroy confidence on 
the part of capitalists, gives a "fillip" to business and makes 
it prosperous. It may also be urged that with the progress of 
improvements in industry prices tend to fall, and that unless 
money increases in amount those who take no active part in 
these improvements nevertheless gain the benefit of them. 

But, on the other hand, there are, in addition to the quantity 
of money, so many forces at work which determine its value 
that the relation between the two is by no means a close one. 
Credit is the main instrument of exchange, and anything 



Money 185 

which impairs confidence so shrinks the volume of credit that 
it produces a stringency in the money market and gives money 
high value. The debtor is quite as much interested as the 
creditor in honest money, and above all things should dis- 
countenance any measures calculated to impair confidence. 

Silver Question and Bimetallism. — The discussion of the 
amount of money needed by a country naturally brings us to 
two topics, called the silver question and bimetallism. Silver 
and gold are both used as money, and as government coins 
them it determines the ratio at which it will do this. A ratio 
which has been commonly established is fifteen and a half to 
one, which means that in full legal tender coins one ounce of 
gold is considered equal to fifteen and a half ounces of silver. 
This is the general European ratio, but the United States has 
established the ratio of approximately sixteen to one. The 
European ratio was maintained for about seventy years during 
this century by the action, first of France, and then of a com- 
bination of countries called the Latin Monetary Union, in 
which Belgium, France, Switzerland, and Italy were most 
prominent. These countries opened their mints freety to both 
gold and silver, and coined money at the ratio of one to fif- 
teen and a half. Everyone who had gold or silver could have 
it changed into money. About 1873, however, Germany, which 
had formerly used silver, determined to replace it with gold, 
and thus threw an immense amount of silver on the market, 
while the demand for gold was correspondingly increased. 
Other countries, including our own, also demonetized silver, 
or, in other words, stopped the free coinage of silver, and 
thus made it only a subsidiary money, instead of a full 
legal tender, as it had been. Like Germany, we introduced 
what is called gold monometallism. Gold alone was hence- 
forth to be converted into coins for anyone who offered it to 
our mints. This action alarmed the countries of the Latin 
L T nion, and they too suspended the coinage of silver. To add 
to the confusion, large discoveries of silver had increased con- 
siderably the supply of that metal, and the old ratio was quick- 
ly destro}'ed, silver falling so much in value as measured in 



186 An Introduction to Political Economy 

gold that to-day it requires about thirty-five ounces of silver 
to purchase one ounce of gold. The market ratio of the metal 
in the coins averaged 34.44 to 1 in the fiscal year 1900. All 
this naturally increased the value of money, and thus, inci- 
dentally, the value of all debts, and produced great distress in 
Germany and in other industrial lands. But the increase in 
debts was only a part of the mischief. Oriental and South 
American countries use silver, and trade was easily carried on 
with those countries as long as gold and silver would readily 
exchange at an established ratio, but when the ratio began to 
fluctuate, an uncertain and demoralizing element was intro- 
duced into trade which rendered it highly speculative, and 
entailed loss upon the business world. The merchant in 
Liverpool who sold goods to a merchant in India agreed to 
receive a fixed sum of silver money, but in England it was 
necessary to turn this silver into gold, and a fall in the value 
of silver during the progress of the transaction might bank- 
rupt him. 

Bimetallism has been proposed as a remedy. This means 
that government must coin at a fixed ratio all gold and silver 
which anybody desires to have coined. One country alone can- 
not introduce bimetallism, because other countries might send 
to it all their silver and take away its gold, just as Ger- 
many evidently contemplated draining France of at least a 
large portion of her gold. Experience seems to demonstrate 
that national bimetallism is out of the question, and no scien- 
tific economist favors it. Economists were at one time in- 
clined, however, to favor what is called international bi- 
metallism. International bimetallism means bimetallism 
based on an international agreement like that which ob- 
tained in the case of the Latin Union before 1874. It was 
urged that all countries should agree to coin gold and silver 
at the ratio of one to fifteen and a half. It was believed that 
if the principal commercial countries of the world — let us say, 
France, Germany, England, and the United States — should 
enter into such an agreement, the ratio could be maintained. 
Gold and silver are used principally for money, and owners 



Money 187 

of gold and silver would be obliged either to have it coined at 
the government ratio or sell it on the market for use in the 
arts. The arts absorb only a small proportion of the annual 
product, to say nothing of the enormous existing supply of 
gold and silver in the world. Governments, then, are in the 
position of monopolists, and by agreement could maintain a 
fixed ratio. The advantages of this would be to insure a more 
adequate supply of gold and silver and to facilitate business 
transactions between gold-using and silver-using countries. 

It would take us too far from our general survey to go into 
the details of recent monetary history, and space is not ade- 
quate for anything more than the briefest statement of a few 
main facts calculated to elucidate our present situation. 

First, it must be observed that for some twenty years there 
was an agitation in favor of international bimetallism both 
on the part of theorists of repute and of practical statesmen. 
Several international monetary conferences, supported vigor- 
ously by the United States, have been held, of which the most 
noteworthy were the Paris conference of 1878 and the Brussels 
conference of 1892. Nothing whatever has come of these ex- 
pert discussions. The quiet opposition to the plans has been 
more potent than the activity of the bimetallists. England 
has led the opposition, and this is undoubtedly due in part to 
her powerful position as a creditor nation. In the meantime 
action of various sorts has been tried by our own country. 
First, we had the Bland- Allison Act of 1878, which provided 
that not less than $2,000,000 worth of silver and not more 
than $4,000,000 worth should be purchased every month 
by the United States, and coined into full legal tender silver 
dollars at the ratio to gold of sixteen to one. The Treasury in 
every case purchased the minimum amount, the total coinage 
up to 1890 amounting to $378,166,793. This did not keep up 
the value of silver bullion, and failed to satisfy the adherents 
of silver, who demanded free and unlimited coinage of that 
metal. As a compromise measure, but one which was re- 
garded as distinctly favorable to silver, Congress in 1890 
passed what has been known as the Sherman Act. 



188 An Introduction to Political Economy 

The Sherman Act. — By the terms of this act the Secretary 
of the Treasury was to purchase monthly 4,500,000 ounces of 
silver bullion at market value — so long as the price should not 
exceed one dollar for 371.25 grains of pure silver — paying 
therefor with notes of the Treasury. It was also provided that 
the treasury notes should be redeemed on presentation in gold 
or silver coin at the discretion of the Treasurer, and that they 
should be "legal tender in payment of all debts, public or pri- 
vate, except where otherwise expressly stipulated in the con- 
tract." The bullion was to be coined at the rate of 2,000,000 
ounces per month until July 1, 1891, after which coining was 
to cease, and the bullion to be stored in the Treasury vaults.* 
In accordance with the provisions of the law there was pur- 
chased, first and last, 168,000,000 ounces of silver, of which 
28,000,000 ounces were coined into $36,000,000. Treasury 
notes to the amount of $156,000,000 were issued in payment. 

The "Endless Chain." — In the meantime, by action of the 
Treasury Department, but without express action of Congress, 
there had been established a gold reserve of $100,000,000 for 
the redemption of "greenbacks" when presented. The Sher- 
man Act gave us the so-called "treasury notes," redeemable 
"in coin" — that is, gold or silver, as has just been explained. 
But if the parity of all kinds of money was to be maintained 
and a depreciated currency avoided, it was deemed necessary 
to give gold for the treasury notes if demanded; and it was 
expressly declared that parity was to be maintained. 

There were, therefore, now two issues which were prac- 
tically redeemable in gold from the national Treasury. Within 
a year after the passage of the Sherman Act there began in the 
summer of 1891 one of the heaviest exportations of gold that 
have occurred in our history. To obtain the gold for exporta- 
tion "treasury notes" and "greenbacks" were presented to the 
Treasury and were there redeemed in gold. Under this 
pressure the gold reserve rapidly diminished. The year 1893 

*It was, however, provided that after July 1, 1891, so much should be 
coined " as might be necessary to provide for the redemption of the treasury 
notes authorized to be issued by the same act in payment of said bullion." 



Money 189 

saw a renewal of heavy exportation, and it became evident that 
the regular gold reserve of $100,000,000 would soon be broken 
into. It was held to be a question whether treasury notes 
should be redeemed from this special reserve which had 
been intended to provide security for redemption of the 
greenbacks. Secretary Carlisle finally announced that he 
would redeem treasury notes in gold under any and all cir- 
cumstances, but it was not until a rumor had gone out from 
Washington that gold payments on treasury notes were to be 
discontinued. At this critical time the government of India 
demonetized silver, and the price of silver fell inside of three 
days from eighty-two cents to sixty-seven cents an ounce. This 
combination of circumstances led to a special session of Con- 
gress in the summer of 1893. 

Repeal of the Sherman Act and the Issue of Bonds. — After 
a prolonged and bitter fight a bill to repeal the purchasing 
clause of the Sherman Act was passed. But the withdrawal 
of gold did not cease. For the time being there was a de- 
ficiency in the ordinary revenue of government, and current 
expenses were being paid in greenbacks for which gold had 
been paid from the reserve in redemption. Thus the govern- 
ment was practically exhausting its reserve in ordinary pay- 
ments. Such a state of things could not continue. Without 
going into details, for which this is not the place, it may be 
said in general that the reserve in the Treasury continued to 
fall and to produce increasing alarm, that the Secretary of 
the Treasury, with the authorization of the President, by 
virtue of an act of 1875 for the redemption of specie pay- 
ment felt warranted in repeatedly issuing bonds in order to 
maintain payments in gold and to meet demands on the Treas- 
ury, and at length it was believed by the administration to be 
necessary to place a large amount of bonds with a syndicate of 
New York and London bankers pledged to import gold from 
Europe and to exert all their financial influence "to protect 
the Treasury of the United States against the withdrawals of 
gold, pending the complete performance of this contract." 

The government was thus brought into what many regarded 



190 An Introduction to Political Economy 

as a humiliating condition of dependence upon private 
bankers. 

The Campaign of 1896. — The Presidential campaign of 
1896 brought the silver issue into greater prominence than it 
had ever held before. The Democratic platform declared 
for "free and unlimited coinage of silver and gold at the ratio 
of sixteen to one," by independent action of the United States. 
The Republican platform expressed the opinion that, while a 
large use of silver is desirable, free coinage of that metal 
should be adopted only by joint action of the civilized coun- 
tries of the world. The result of the campaign is known to all. 

The Currency Bill of 1900.— In March, 1900, a new cur- 
rency bill was passed by Congress, the provisions of which may 
be briefly explained. 

The issue of treasury notes is discontinued, and provision is 
made for coining silver dollars and issuing silver certificates 
in small denominations to take the place of those notes as they 
are presented to the Treasury. After coining as much silver 
bullion as will represent in dollars all the treasury notes which 
have been issued, the remaining bullion will be coined into 
subsidiary silver, the maximum amount of which is fixed by 
the act of 1900 at $100,000,000. In this way the notes re- 
deemable from the gold reserve will ultimately be reduced to 
the $346,681,016 of "greenbacks." A reserve is now for the 
first time definitely set aside as a separate fund, its amount 
being raised to $150,000,000, including gold and redeemed 
notes. If the amount of gold in the reserve falls below 
$100,000,000, and the redeemed notes cannot be exchanged 
for gold from the Treasury balance, short term three per cent 
gold bonds, payable one year after issue, are to be sold to re- 
pair the deficiency, the gold received for the bonds being ex- 
changed by the Treasury for the redeemed notes in the reserve 
fund. The notes thus exchanged may be used for any govern- 
ment purposes, except for payment of deficits in current rev- 
enue. In this way the pressure will be lessened through the 
presence of more gold in the Treasury and a smaller amount 
of notes outstanding against it. By these provisions the ratio 



Money 191 

of the gold reserve to outstanding gold obligations gradually 
increases from thirty-four to forty-three per cent. 

Banking Features of the Act. — Some important changes 
are also made in the national banking system. Before, banks 
could issue notes only up to ninety per cent of the bonds which 
they were compelled to deposit in the national Treasury. They 
are now permitted to issue to the full par value of such bonds, 
with the restriction that, in the improbable event of the value 
of the bonds falling below par, new bonds to make up the de- 
ficiency must be purchased and deposited to the amount of 
the deficiency. Furthermore, the attempt is made to extend 
the system into smaller communities by permitting the estab- 
lishment of banks with a capital of $50,000 in communities of 
less than 6,000 population, and with a capital of $25,000 in 
communities having a population of less than 3,000. One 
further provision of the act calls for mention. Inducement 
was offered to the banks to exchange their old five, four, and 
three per cent bonds for new thirty-year two per cent gold 
bonds. On all bank-note circulation based upon the new bonds 
the former tax of one per cent annually is reduced to one half 
of one per cent. 

The Present Status. — In the platform of the two great par- 
ties in 1900 positions were assumed somewhat similar in ap- 
pearance to those of the year 1896. The Republican Party, 
however, had more emphatically committed itself to gold 
monometallism, while the Democratic platform had ceased 
to make the silver plank a dominating or central one. The 
reasons for the change are not far to seek. In the first place, 
the past five years have been years of unusual prosperity. The 
United States has taken a position in commerce as leader of 
the world. The distress caused by a depreciation of prices 
now belongs mainly to past history, and is no longer keenly 
felt. Moreover, the vast output of gold from the South 
African and later from the Alaskan fields has been at work 
gradually lessening the pressure upon the money use of gold. 
It is felt in many quarters that the problem of the currency 
is in a fair way to find a natural solution. Finally, careful 



192 An Introduction to Political Economy 

thought and more study than the mass of voters have heen 
wont to give to economic problems have spread grave doubts 
even among the radically minded as to the possibility of suc- 
cessful independent action by the United States. 

The Future. — And yet it must be remembered that the 
natural remedy to which we have referred may be only tem- 
porary in its action. It is possible that gold may increase in 
amount until we have the reverse of the phenomena which 
have marked the monetary history of the last quarter of a 
century, or, on the other hand, the gold supplies may fail. In 
that case the evils of a currency gradually diminishing in 
proportion to business may again be experienced. 

Again, further complication and difficulty may be injected 
into the matter by future commercial relations with the East, 
and particularly with China, from which country we are 
threatened with so many problems. Professor Reinsch, of the 
University of Wisconsin, in a recent book on World Politics, 
expresses the opinion that one of the great factors of the 
economic life of the next century will be a marvelous devel- 
opment of Chinese trade and industry. China is a silver-using 
country. Should it change suddenly to a gold standard, to 
conform to the money customs of other nations, its four hun- 
dred millions of people and its possibilities of vast com- 
mercial and industrial development may, in the view of Pro- 
fessor Reinsch, put such a pressure upon gold that the nations 
will find a very real and very serious problem confronting 
them. On the other hand, should China make the predicted 
advance in prosperity, and at the same time preserve the exist- 
ing silver monometallism, trade must be seriously disturbed 
by the absence of any fixed par of exchange. 

Interesting as speculations of this kind may be, they have 
little immediate importance, and we cannot longer indulge in 
them now and here. 

Finally, it is to be hoped that whatever changes in our 
monetary system may be necessary, the agitation for cheap 
money will not again be revived. This agitation has been a 
curse to our country during its entire history, and that in 



Money 193 

many ways. It is not merely that it has diminished confidence 
at frequent intervals, and thus diminished prosperity, but it 
has diverted attention from real issues before the country. A 
change in the value of money should never be looked upon 
as an instrument of reform. Such a change will injure the 
poor, and even debtors, more frequently than it will help them. 
If it is desired to produce modifications in the distribution of 
wealth, various methods can be suggested which will accom- 
plish that end, but monetary changes are not one of these. 
Fortunately, recent investigations have given us reason to 
think that we are now definitely leaving behind us the clamor 
for cheap money as a phase of our history which has been due 
to a sparse population and primitive conditions on the ever- 
receding and finally disappearing "frontier." 



Literature. — Bullock, Essays on the Monetary History of 
the United States; Dunbar, History and Theory of Banking ; 
Jevons, Money and the Mechanism of Exchange; Laughlin, 
History of Bimetallism; Nicholson, Money and Monetary 
Problems; Walker, Money, Trade, and Industry, chapters vi 
and vii ; White, Money and Banking. 



194 An Introduction to Political Economy 



CHAPTEE III 

CREDIT AND THE INSTRUMENTS OF CREDIT : BANKS AND CLEAR- 
ING HOUSES 

In an earlier chapter, as the reader will recall, the develop- 
ment of economic life was divided into three stages with re- 
spect to the mode in which goods are transferred — the periods 
of truck economy, money economy, and credit economy. The 
transfer of goods becomes continually easier as we pass from 
one to the other, and as we progress through any one of the 
periods. Probably money is the most remarkable contrivance 
for facilitating transfers, but, next to money, credit and its 
instruments have rendered greatest service in that part of our 
modern economic life which is especially concerned with 
transfers of goods. Credit is defined by John Stuart Mill as 
"permission to use the capital of another person." Professor 
Roscher defines credit as "the power to use the goods of an- 
other, voluntarily granted in consideration of the mere prom- 
ise of value in return." Credit has also been defined as "con- 
fidence in the ability of another to make a future payment." 
None of these definitions seems quite adequate. Credit has at 
least two economic meanings. In one sense it is a commercial 
transaction of a certain kind; in another it is the ability to 
enter into such a transaction. There are three elements in 
a business transaction to which we apply the term credit: 
first, the present transfer of goods; second, the use of the 
goods transferred; third, the future retransfer of the goods 
or an equivalent — that is, repayment. Professor Knies has 
defined credit as merely "a commercial transaction between 
two parties in which the service performed or the value ren- 
dered by the one falls in the present, and the counter-service 
or counter-value of the other in the future." But this defini- 
tion seems to err on the other side, by neglecting the element 



Credit and the Instruments of Credit 195 

of confidence which enters into credit transactions ; not neces- 
sarily and not always confidence in the character of a person 
to whom credit is given — that is, to whom the ability to enter 
into a credit transaction is accorded — but confidence in some 
person — it may be a surety — or in some thing, such as 
"collateral security," which may be sold if the counter-service 
is not rendered. The person who transfers goods in a credit 
transaction is the creditor ; the person to whom they are trans- 
ferred, the debtor ; the amount transferred, the debt. 

Instruments of Credit. — Growing out of credit transactions 
we have various documents, or written evidences of these 
transactions, called instruments of credit, which are frequent- 
ly used as substitutes for money, and which have in great com- 
mercial centers so far displaced money in large transactions 
that the money remains only as "small change/' 

Among these instruments the simplest and most extensively 
used is the check. It is simply an order drawn upon a banker 
with whom one has money on deposit to pay to a person named, 
or sometimes "to bearer," a sum of money. Except in retail 
trade and in payments of wages, payments for goods and serv- 
ices are usually made by checks. Even wages are sometimes 
paid by checks, and payments for goods bought at retail, es- 
pecially when they are considerable in amount or when they 
represent the purchases of a month or more, are generally 
made in the same way. 

Bankers also use checks. When one banker gives a check 
on another the instrument is usually called a draft. When, 
however, the bankers reside in different countries the instru- 
ment is often called a bill of exchange. 

Promissory notes are promises to pay for value received, 
under conditions named, at the expiration of a certain period. 
These are signed by the debtor. A person buys goods, and "for 
value received" promises to pay the person from whom the 
goods are bought. But the seller may also "draw on" the 
buyer by means of a bill of exchange, which in such cases is 
sometimes also called a draft, particularly when both parties 
to the transaction reside in the same country. Let us suppose 



196 An Introduction to Political Economy 

that A is the seller and B the buyer. A then writes out an or- 
der to B to pay to himself or to a third party, C, "for value 
received/' the amount of the debt. A, the creditor, signs the 
bill. If B acknowledges the debt, and is ready to agree to pay 
it, he writes on the bill when presented "Accept" and signs his 
name. It then becomes legally binding, and the merchant 
who does not pay his drafts when they fall due is liable to be- 
come bankrupt. A check or bill may be transferred by in- 
dorsement. The person to whom payment is to be made — the 
payee — writes his name on the back with an order that the 
money be paid to a fourth party, D, the indorsee. The payee 
who indorses the instrument of credit is the indorser. The 
indorsee, D, may assign the instrument to still another party, 
E, by a new indorsement, and D thus becomes in turn an 
indorser. This may be continued indefinitely, and thus the 
instrument may pass from hand to hand in place of money, 
each one who indorses it becoming responsible, provided that 
no previous indorser can be made to fulfill his obligation. 

Book credit is also extensively used. When goods are trans- 
ferred, a record of the transaction is kept, or, as we ordinarily 
say, the goods are "charged," and a bill is afterward sent for 
the amount. A vast amount of credit is granted in this sim- 
ple, old-fashioned way, both in wholesale and in retail trade. 
Where two persons mutually grant book credit, as is com- 
monly the case among merchants in smaller communities, 
only balances need be paid on settling day. In such cases a 
further lessening of the amount of money needed for settle- 
ment is effected by the use of what are called "due bills/' 
which pass locally among the merchants as a sort of credit 
money. 

Advantages of Credit. — The advantages of credit may be 
summarized as follows : 

1. Credit, by saving time and labor, furnishes a more 
perfect and convenient means of payment in large sums 
and between distant places than do the precious metals. 
This saving is effected by means of notes, checks, and 
bills of exchange. It is thus that in international trade 



Credit and the Instruments of Credit 197 

only small sums of money are sent from one country to an- 
other. Only balances, it must be understood, are paid in 
money. If some London merchants owe New York merchants 
a million pounds and other New York merchants owe these 
or other London merchants a million pounds, it is obvious 
that no money need leave either country. The London mer- 
chants will send orders to their New Y^ork debtors to pay their 
New Y T ork creditors. This is the simplest kind of cancella- 
tion of indebtedness. In actual life it is more complex, but 
the principle is the same. If the London creditors of New 
York merchants are not the same as the London debtors, the 
debtors could buy orders of the creditors and send them to 
New York. If New York merchants owe London merchants, 
it is possible that Paris merchants may owe New York mer- 
chants an equal sum, while London merchants are in debt to 
Paris merchants to the same amount. By exchange of orders 
all debts could be paid. 

This exchange of orders is called arbitration of exchange. 
Naturally there has arisen a class of people who deal in these 
instruments of credit, and this is the class of bankers and 
brokers. Debtors and creditors both resort to them as middle- 
men. 

2. Credit takes the place of corresponding amounts of gold 
and silver. This is another saving, enabling us, as it does, 
to employ the precious metals for other useful purposes. 

3. Credit enables capital to be employed more productively. 
He who possesses capital, but is for any reason unable or un- 
willing to use it, transfers it to another for compensation, and 
thus both are benefited as well as the public economy. Other 
things being equal, it is given to him who will pay the most 
for it, and in a normal condition of things this is the one who 
can employ it most productively. 

4. Credit enables those who have business qualifications, but 
who have no capital, or inadequate capital, to engage in busi- 
ness and to employ their talents for their own benefit and for 
the benefit of society. Many thus start without capital, and in 
the end become capitalists on their own account. Indeed, 

14 



198 An Introduction to Political Economy 

credit has been the starting point of many of the large for- 
tunes now existing. In numerous instances credit brings 
together capital which is owned by those without business 
qualifications or inclination for business, and talent possessed 
by persons who are without capital, and thus is not with- 
out influence in uniting capital and labor harmoniously. This 
is particularly the case with those institutions — like the Ger- 
man cooperative credit-unions — which supply capital to the 
poorer classes, and with American building associations, 
which furnish the same classes with capital for the construc- 
tion of homes. 

5. Credit gathers together the smallest sums into a large 
aggregate, particularly by means of savings banks, and makes 
it possible for these small sums to be productively employed 
by joint-stock companies and other concerns. Thus capital is 
concentrated, but its returns are scattered among the people. 
Credit encourages capital accumulation and promotes thrift. 
In this way it gives employment to small accumulations as 
they are made, and thus helps men to provide for emergen- 
cies and for old age. 

There are many other advantages of credit which will sug- 
gest themselves to the careful observer.* 

Evils of Credit. — The dark side of the credit economy must 
not be overlooked. Beneficent as it is in many respects, credit 
continually encourages extravagance, which is a fruitful 
source of fraud and embezzlement. Credit at times promotes 
precarious speculation, because those who engage in it have 
little of their own capital to lose, and are sometimes over- 
reckless with the capital of other people. Our entire land is 
strewn with the ruins of business wrecked by men who have 
mismanaged the property which unwise credit gave into their 
hands. When this management assumes unusually large pro- 
portions, it becomes a powerful factor in precipitating a dis- 
astrous panic and crisis. 

*It is proper to state that in the enumeration of the advantages of credit 
I have in the main followed Professor Conrad's excellent Orundriss zum 
Studium der politisc?ie?i Oeko?iomie. 



Credit and the Instruments of Credit 199 

It has been said by some that all "consumptive credit" — 
that is, credit secured in order to enable one to spend money 
for personal gratification, or for personal use in any way 
— is bad, while "productive credit" — or, in other words, credit 
for carrying on a business — is good ; but the line cannot be so 
sharply drawn, for, on the one hand, consumptive credit, 
while it frequently leads to extravagance, has also enabled 
many a young man to develop personal powers, and to be- 
come a great artist or scholar, and, on the other hand, as has 
just been explained, even productive credit frequently causes 
loss. 

Banks and Clearing Houses. — Bankers have already been, 
described as middlemen in credit transactions. They are 
sometimes called dealers in credit, and there is little that they 
do which is not in one way or another connected with credit. 
But banks are not mere agents. They have a capital of their 
own which serves the purpose of a guarantee fund, and they 
receive money which their customers deposit with them. They 
mingle this with their own, gaining exclusive control over it 
all. They become the debtors of the depositors and the credi- 
tors of those to whom they lend money. Their source of profit 
is not chiefly their own capital, but the capital deposited with 
them. As a rule, commercial banks pay no interest on deposits, 
and when they do pay interest they charge more on money 
lent than they pay on money deposited, the difference con- 
stituting their chief source of profit. 

Formerly nearly all banks in the United States issued notes 
which circulated as money, and this was regarded as their 
principal business. Now only national banks issue notes, and 
they must deposit bonds at Washington as security for this 
circulation in addition to paying a tax for the privilege. All 
governments in civilized countries have greatly restricted the 
power of banks to issue circulating notes to serve as money. 

Clearing houses are institutions which were originally con- 
trived by the employees of banks, with the object of saving 
time and labor. Banks in a city have continual dealings 
with one another. A customer of a bank deposits with it all 



200 An Introduction to Political Economy 

his checks, no matter on what bank they may be drawn. It 
consequently happens that one bank in New York city, for 
example, will receive checks every day on all or nearly all the 
other banks, while the other banks receive checks drawn on it. 
Formerly there was continual running back and forth among 
the banks to balance the accounts. Now the representatives 
of all the banks meet in one common place, called a clearing 
house, and exchange checks, drafts, and other demands, only 
the differences between the sums due being paid. If more 
is owed to a bank than is due from it to the other banks, it 
receives this difference from the clearing house; if it owes 
more than is due it, it pays the difference. The sums due the 
clearing house and. the sums which it must pay, of course, 
balance perfectly. 

The clearing-house statistics illustrate the inadequacy of 
money alone to do the business of the world. The total trans- 
actions of the clearing houses in the cities of the United States 
for the year ending September 30, 1899, amounted to nearly 
ninety thousand millions of dollars, or more than thirty times 
all the money in the country, banknotes included; for the 
money in the country at the time was considerably less than 
three thousand millions of dollars. 



Literature. — Bagehot, Lombard Street; Clearing Houses: 
Their History, Methods, and Administration, by James G. 
Cannon, Vice President of the Fourth National Bank of the 
City of New York ; Dunbar, The Theory and History of Bank- 
ing; Gilbart, The History, Principles, and Practice of Bank- 
ing; Jones, Economic Crisis, chapter vii; the article "Clear- 
ing System" in the Dictionary of Political Economy, edited 
by R. H. Inglis Palgrave ; Walker, Money, Trade, and Indus- 
try, chapters x, xi, xii; White, Money and Banking; History 
of the Currency of the Country and of the Loans of the United 
States, from the Earliest Period to June 30, 1900, by William 
F. De Knight, Office of the Register of the Treasury, Wash- 
ington, Government Printing Office. 



The Regulation of International Commerce 201 



CHAPTER IV 

THE REGULATION OF INTERNATIONAL COMMERCE 

Objects of Regulation. — Nations have always regulated 
international commerce, and in an examination of history we 
discover at least four motives for this regulation. Ancient 
nations, the Greeks, Hebrews, and others, dreaded contact 
with foreigners, and regulated commerce in order to restrict 
international trade and reduce intercourse with other nations 
to a minimum. Again, nations have regulated international 
commerce in order to make it a source of revenue. Some- 
times, as in ancient Athens, exports and imports have been 
equally taxed. England at present taxes only imports, but 
taxes them with a view to a revenue for the support of the 
national government. In the third place, tariffs have at times 
been laid by nations with the object of securing a supply of 
the precious metals by means of a so-called favorable balance 
of trade. This was a dominating principle in the teaching 
of the mercantilists, whose views are explained at greater 
length in another place. Finally, international commerce 
has been regulated by nations in order that the force of for- 
eign competition might be weakened and home producers 
encouraged. This is usually accomplished by means of taxes 
on imported commodities in cases where commodities of the 
same kind can be produced at home. These taxes are called 
protective, and collectively they form what is called a pro- 
tective tariff. It is supposed that, as foreign commodities are 
liable to special taxes, the domestic producers will receive 
special encouragement. The home producers are "protected" 
against foreign competitors. 

Protection. — It is intended in this chapter to discuss only 
regulation of international commerce of the fourth kind. It 
will at once be recognized as a vast subject which could easily 



202 An Introduction to Political Economy 

be made to fill several volumes like the present. It must 
suffice us here to explain briefly the main points in the contro- 
versy between those who believe in this kind of regulation and 
those who oppose it ; to bring forward some general considera- 
tions which ought not to be overlooked; and to say a word in 
conclusion in regard to some changes in our present tariff 
system on which all should unite. 

Arguments of Protectionists. — It is argued in favor of pro- 
tection that it promotes nationalism, which is held to be a 
good thing. It is further urged that domestic trade draws 
the citizens of a country together, while international trade is 
cosmopolitan and tends rather to their separation. Protec- 
tionists maintain further that protective tariffs are necessary 
in order to build up a diversified national industrial life. 
They claim that there exist in a new country like the United 
States many natural industrial advantages of which the in- 
habitants nevertheless cannot avail themselves unless they are 
at least temporarily protected. Government should, they say, 
foster infant industries in order to develop our natural re- 
sources and to produce diversity in industrial pursuits. The 
diversified-national-industry argument and the protection-to- 
infant-industries argument are thus supplementary. It is 
held by protectionists that older nations, with their superior 
capital and acquired skill, will break down in their infancy 
any new pursuits which a younger nation may seek to estab- 
lish, in order that they may thereafter have the market to 
themselves. Closely connected with this is an argument based 
on military grounds. It is often thought by protectionists that 
industrial national independence prepares a nation better for 
international war, and the home-market argument for pro- 
tection naturally follows. Again, a home market is claimed 
to be superior because, it is alleged, it is a surer market. Pro- 
ducers are less likely, they say, to be deprived of it by war and 
other emergencies. It is, moreover, urged that the building 
up of a home market is beneficial especially to the farmer, be- 
cause it saves the expenses of transportation of products to 
foreign lands. It has also been maintained by the distin- 



The Regulation of International Commerce 203 

guished American economist, Henry C. Carey, that a country 
can remain permanently prosperous only on condition that 
what is taken from the soil is returned in manure and other 
kinds of fertilizers, and that this will be accomplished only 
when products are consumed at home. Finally, protection has 
been advocated in the United States, especially since about 
1840, when the labor movement began to assume prominence, 
on the ground that it has been the cause of higher wages in the 
United States than obtain in European countries, and that it 
is necessary to maintain these high wages, which are said to 
be one main cause of our higher civilization. 

Arguments of Free-Traders. — In opposition to protection 
it is frequently alleged that protective tariffs are a violation 
of the natural right of every man to buy his goods where he 
will and to sell his products wherever he sees fit, untrammeled 
by human laws. This argument, based on natural right, may 
be dismissed at once as a "dogmatism in disguise," to borrow 
the happy expression of an English jurist in characterizing 
this sort of reasoning, in which high-sounding phrases are sub- 
stituted for arguments, and under their cover opinions are 
thrust upon others without a real effort to substantiate them. 
How prove the natural right ? It certainly does not appeal to 
the majority of mankind as a thing right in itself to buy and 
sell where one pleases, regardless of the common weal, and 
all history is against such exorbitant claims of individualism. 
It appears to most men that the public welfare must decide 
questions of this nature. Protection, according to this argu- 
ment, is called robbery, because it violates an assumed natural 
right. It is much to be desired that arguments of this sort 
should cease to be heard so frequently. 

Again, it has been claimed that the protective tariffs in the 
United States are unconstitutional. It would be most unfor- 
tunate and anomalous if nowhere in our government were 
lodged the power to pass such regulations regarding inter- 
national commerce as might appear to be required for the 
promotion of the public welfare. But this argument is idle 
and futile. It does not correspond to the opinion of our best 



204 An Introduction to Political Economy ..'..' 

jurists, and it is very certain that we shall never see a Supreme 
Court in the United States which will venture to pronounce 
protection unconstitutional. 

The really able arguments of free-traders are those which 
aim to show that protection, on the one hand, fails to accom- 
plish its ends, or is needless for the accomplishment of the 
ends it contemplates ; and that, on the other hand, it actually 
does accomplish positive harm. They deny that protection 
is necessary to foster nationalism, and in this denial they are 
supported by strong testimony from modern experience. Dur- 
ing the past fifty years international commerce has expanded 
marvelously, and international communication has been in 
every way facilitated, while at the same time we have wit- 
nessed a remarkable growth of national feeling all over the 
civilized world. 

It is not clear that protective tariffs are necessary to pro- 
duce a diversity of pursuits in a great country like the United 
States. True, a purely agricultural nation is not likely to 
progress rapidly, and a certain amount of diversification of in- 
dustry is therefore in the highest degree desirable ; but it would 
seem that our enormous extent of country, our varied climate, 
our natural gifts of all sorts, had in themselves amply pro- 
vided for sufficient diversity. 

Certain free-traders, who admit that protection may bring 
into existence profitable industries which could not otherwise 
be developed, oppose such protection on the ground that those 
industries, once established, will be able to retain the favor of 
government in discriminating duties, and that consequently, 
though such industries can be carried on profitably to the 
nation, they will not be so carried on, but will be enabled to 
exact from the consumers, in the form of abnormal profits, 
amounts which will really render them, from the social stand- 
point, unprofitable. 

The argument for protection on the ground that it is a 
benefit to the laboring man does not seem to the writer con- 
clusive. When this argument is analyzed and answered in 
detail it is seen to involve a discussion of many complex 



The Regulation of International Commerce 205 

economic problems. One consideration only will be suggested 
in this place. Labor comes into competition not with com- 
modities, but with labor. Labor desires commodities, and the 
more of them it receives the better. Now, if it is desired to 
protect labor, a tax ought rather to be put on imported labor, 
in order that labor may thus be rendered scarce. If this were 
done, then those who desire labor would be obliged to pay 
heavily for it, as actually happened in England after the 
"Black Death" in the fourteenth century had killed off a large 
part of the laboring population. If it is desired to benefit 
labor, it would seem to the author that after importation of 
labor has been taxed, and labor thus rendered scarce and dear, 
the importation of commodities should be encouraged in order 
that labor may secure an abundance of them cheaply. 

It is maintained by free-traders that protection is especially 
injurious in that it diverts industry from a more to a less pro- 
ductive channel. It is held that industrial forces, if left to 
their natural action, will seek those fields which yield largest 
returns, and that if government artificially induces them to 
take another direction, the factors of production become less 
fruitful and the national economy suffers. 

Finally, it is alleged that protection fosters monopolies by 
shutting off international competition. Eecent combinations 
of domestic producers, as seen in the so-called "trusts," which 
control so large a portion of the industrial field, would seem 
to support this allegation. It is certainly taken for granted, 
in the arguments of the protectionists, that if foreign com- 
petition is shut off or lessened, home producers will still com- 
pete with one another, and thus reduce prices. But now we 
find home producers combining to put an end to home compe- 
tition. It is surely not too much to call this an abuse of the 
principle of protection. 

Some General Considerations ought always to be kept in 
mind in tariff discussions. In the first place, the importance 
of the question is exaggerated. We find a country like Eng- 
land prosperous under free trade; we find countries like 
France and the United States prosperous under protection. 



206 An Introduction to Political Economy 

The matter is one of real but not of vital importance. Do- 
mestic trade in the United States vastly exceeds in its aggre- 
gate amount the foreign trade. The domestic trade of the 
Mississippi valley alone is far greater than our entire foreign 
commerce. It is much to be desired that other economic ques- 
tions should receive part of the interest and discussion which 
are now devoted to this subject. Local politicians dispute ex- 
citedly about the tariff, and thus divert attention from local 
abuses. The proper management of gas works, water supply, 
electric lighting, and street cars is of more importance than 
the tariff controversy to the people of New York, Boston, or 
Chicago, but how much do we hear from our politicians about 
these local questions? Frequently the chief place to begin 
reforms is at home, at our own doors. When we shall have re- 
formed the greater abuses of our municipal governments, we 
shall know much better how to reform the lesser evils at 
Washington ; but this must not be pushed so far as to seem to 
justify indifference to national abuses. 

In the second place, statistics regarding a country's pros- 
perity, urged either for or against protection, are, as they are 
usually presented, of no value. The tariff policy of modern 
countries has been a minor factor in their industrial life. 
Inventions and discoveries — especially in the matter of the 
application of steam to industry — and the growth of intelli- 
gence have been the chief forces which have made such 
astounding additions to the wealth of the world during the 
nineteenth century. 

In the third place, it must be remembered that, bad as it 
may be in many respects, the American tariff is a historical 
growth, and that during the century of our national existence 
it has taken deep root. It has thus become part of our life, 
and it cannot be suddenly eradicated with impunity. Even if 
it is true that American labor would be better off without a 
protective tariff, it does not follow that that tariff ought to be 
removed suddenly in the interests of American labor. If an 
industrial growth is abnormal, the removal of the excrescence 
and the return to normal conditions is a painful process and 



The Regulation of International Commerce 207 

should be effected cautiously. And yet it is impossible to tol- 
erate permanently a bad condition of things, and while rash- 
ness is to be deprecated, progress should none the less be 
demanded. 

Our capital has become enormous. Skill has been highly 
developed in our country, and it is not clear that our indus- 
trial leaders are not quite capable of holding their own with 
the world in a free market. The fact that labor receives a 
large share of the product, if such is the case, does not seem to 
render labor and the other factors of production less fruitful. 
Does the American farmer abandon the cultivation of land 
because out of a hundred bushels of wheat grown he must give 
the American laborer, say, fifty bushels, while his European 
rival gives only thirty ? He still has fifty bushels left. 

It may be said in conclusion, both from a protectionist and 
from a free trade standpoint, that reform of the tariff is pos- 
sible. A great deal, too, can be said in favor of the position 
that a reform of the protective tariff should be accomplished 
by the party of protection. Among other things it may be 
particularly urged that even a far-reaching reform effected by 
this party would not produce half the disturbing alarm which 
would be caused by the same reform if effected by opponents 
of protection. What is especially to be desired is simplicity 
in our tariff system, at present so complex. No article should 
be taxed unless there is some good reason for it. Other things 
being equal, the fewer articles taxed the better. Eeductions 
in duties should be made wherever practicable. 



Literature. — List, National System of Political Economy; 
Patten, Premises of Political Economy; Taussig, Tariff His- 
tory of the United States; Thompson, Protection to Home 
Industry; Walker, Political Economy (advanced course), 
Part VI, chapter xvi. 



PART IV 
DISTRIBUTION 



Introductory 211 



CHAPTER I 

INTRODUCTORY 

It has already been remarked that the production and the 
distribution of the annual income of society cannot be sharply 
separated, and the reader must have observed that more or 
less has been said about the four parts into which the prod- 
ucts of industry are usually divided, namely, wages, interest, 
profits, and rent. Taxes may, perhaps, be regarded as a fifth 
part into which the annual income of society is divided, and 
we may treat taxes as the part which society, organized as a 
state, receives for its participation in production. But, even 
if this view be taken, the fifth part is peculiar in so many 
respects that it is desirable to treat it neither under produc- 
tion nor distribution. 

A great part of the considerations touching upon the sub- 
ject of distribution might undoubtedly be included under the 
general heading production, but on the other hand it is fre- 
quently asserted that distribution is "the true center of all 
economic inquiries," and it would be equally possible, there- 
fore, to treat nearly the whole subject of production from the 
standpoint of distribution. The truth is that these old tra- 
ditional divisions of our subject-matter indicate different 
points of view, and on this account it seems desirable to retain 
them. When we pass from production to distribution we do not 
enter an entirely new field, but we look at what is in the main 
an old field of investigation from a new point of view. 

In this "Part" of political economy we have to discuss 
either actual or contemplated self-conscious social efforts to 
control the distribution of the income of industry among 
families and individuals, and we have also to consider that 
distribution of products which flows, as it were, spontaneously 
from productive processes. It is, however, necessary in the 



212 An Introduction to Political Economy 

first place to add a few remarks to what has already been said 
about property, that fundamental institution in distribution, 
and about wages, interest, profits, and rent. 

Property. — By private property we mean an exclusive right 
or control of a person over an economic good, and sometimes 
we apply the word to the economic good itself over which this 
exclusive right is exercised. It is of the very nature of prop- 
erty that it carries with it the power of exclusion within its 
own sphere, but not that it is absolute. Such a thing as an 
absolute right of property never has existed and never will ex- 
ist. The Eoman law defined property as "jus utendi vel abut- 
endi re" — the right to use or consume a thing. Now, dbutendi 
has by some been supposed to mean abuse, and it has been as- 
serted that the Eoman law gave a man the right to abuse his 
property. But it has been shown that abutendi in this place 
means "use up," or consume, and that the Eoman law con- 
ferred no such outrageous right on a proprietor as that of 
wanton destruction. All codes will be searched in vain for an 
unlimited right of property. There are two elements in prop- 
erty — the social and the individual — and sometimes the one is 
more prominent, sometimes the other. Sometimes the one is 
allowed even to encroach unjustly on the other. John Stuart 
Mill mentions as such an encroachment the assumed right of a 
landed proprietor to exclude the public from the contempla- 
tion of a great natural wonder. This was felt to be so unjust 
and anomalous in the case of the land surrounding Niagara 
Falls that New York State and Canada bought out the private 
owners and made of the land public parks. The general pub- 
lic has had from time immemorial the right to use as pleas- 
ure grounds many forests in Germany, and when, in Prussia, 
this right was restricted, some twenty years ago, it was 
felt by many persons to be an unjust encroachment of the 
individual element upon the social. It is only within its own 
sphere that the right of property is exclusive. The old Teu- 
tonic idea of property, the idea which has entered into the 
life of England and America, makes the social element prom- 
inent, while the Eoman law, with its negative characteristics, 



Introductory 213 

tends to minimize the social element and to exaggerate the 
individual. 

Every change in the laws of property changes to some ex- 
tent the mode of production of economic goods, but to a still 
greater extent and more immediately does it alter their distri- 
bution. What is needed is flexibility in our laws of prop- 
erty so that the conception may be gradually altered in a con- 
servative spirit to meet the demands of existing economic and 
social civilization. Inflexibility is destructive, and tends to 
revolution. 
15 



214 An Introduction to Political Economy 



CHAPTER II 

RENT 

The term rent is frequently used, in a very general sense, 
to denote payment for any differential privilege. But it is 
of that peculiar privilege or advantage which certain land- 
owners enjoy that we have to do in this place. In this sense 
rent has been defined as the annual return of land in itself. 
When a person parts for valuable consideration with the use 
of land, what he receives is called rent, but the value of the 
use of it is still rent when he retains it and uses it himself. 
The desirability of any piece of land depends upon the two 
factors of quality and situation. The term quality, in turn, 
covers considerations of extension, natural fertility, conforma- 
tion, and climatic influences. Now, what determines the 
amount of rent ? Land of various degrees of fertility, or other 
favorable qualities or situation, is cultivated, and the poorest 
land cultivated is said to be on the "margin of cultivation." 
This is land which pays no rent. What is received comes 
simply as a return to capital and labor. An abundance of 
land can be found which pays no rent. It "just pays" to culti- 
vate such land, and that is all. Now, the greater part of land 
is either better situated or it is more fertile than this no-rent 
land. It more than "just pays" to cultivate this land, and 
the difference between the yield of this land and that of land 
on the margin of cultivation is the amount of rent. It is on 
this account that rent is said not to enter into prices. When 
we buy a bushel of potatoes we pay the same whether they 
are grown on poor or on fertile land, whether grown with- 
in half a mile of the market or five hundred miles away. 
But it is obvious that the cost of growing a bushel of pota- 
toes varies widely. It is the cost under the least advan- 
tageous circumstances — where the price received barely covers 
the cost — which determines price. Price must be high enough 



Rent 215 

to cover this cost, or the land will go out of cultivation, just as 
poor land has gone out of cultivation in England and in some 
of our Eastern states since our West was rendered accessible 
by railways. When the potatoes are grown under favorable 
circumstances the price more than covers cost, and a surplus is 
left which is called rent. If rent paid were abolished, price 
would not be altered, as you may discover by asking any tenant 
whether he would lower the price of potatoes if his landlord 
would release him from paying rent. 

It is not strictly accurate, however, to say that rent does not 
enter into price. A part of price usually paid is rent, and in 
this sense rent enters into price, but price is not altered by 
rent payments. Values of things exchanged are determined 
by their production under the least favorable circumstances 
under which they can be permanently produced. Those who 
produce under more favorable circumstances have a surplus. 
Pure economic rent is not return for capital — that is, for im- 
provements — at least until they have become inseparably 
and undistinguishably blended with the land. Return for 
improvements is, strictly speaking, interest and profits. It is 
sometimes said that land will not sell for what the improve- 
ments cost. The effect of improvements cannot last indefinite- 
ly, and they must, therefore, be paid for year by year, and en- 
tirely paid for within an often very limited period, or they do 
not prove remunerative, as frequently happens. In any sec- 
tion of our own East, where it is said that there is no economic 
rent, the reader will be able to find unimproved land for which 
people will gladly pay rent. At the same time it is hard in 
practice to distinguish pure economic rent of agricultural land 
from profits, and it is perhaps impracticable to carry out any 
policy which would require this. On the other hand, it is an 
easy matter in cities to distinguish rent from profits. The 
thing is done every day in cities like London, New York, and 
Boston. In cities land can readily be bought separately from 
improvements, and the improvements can be bought without 
buying the land. Whatever surplus land yields above returns 
on labor and capital is rent, and as city lots are not cultivated; 



216 An Introduction to Political Economy 

whatever is received per annum for them is pure rent. It is 
usually called ground rent. What has thus far been presented 
is in rough outline essentially the Eicardian theory of rent. 

Urban rents have certain peculiarities which have not been 
sufficiently noticed, due to the special importance which in the 
case of urban land attaches to situation. We may consider 
land used for residential purposes as an illustration. Cities 
have sections which natural beauty, healthfulness, conven- 
ience, and especially fashion, have rendered especially desira- 
ble. In proportion to demand the supply is sharply limited, 
and this brings about a keen competition. The height to 
which this competition will carry rents will depend upon the 
number having large wealth, and their readiness to spend 
money for what they regard as desirable sites for homes, 
fashion in our cities having perhaps more to do with intensity 
of desire than anything else. Similar considerations will 
affect the height to which rent for business sites will rise. 
The higher the average of well-being and the more ready peo- 
ple are to spend money, the higher will such rents go. Fashion 
enters here, too, particularly in retail trade. If people spend 
money readily, they will pay appreciably more for an article 
in a convenient locality than for the same article in a slightly 
less convenient situation. This will enable those doing busi- 
ness in desirable locations frequently to secure higher prices 
with a larger number of sales, or to increase still further the 
number of sales by keeping the same price which competitors 
less desirably situated ask. The influence of fashion can 
be seen in a very marked manner in a city like New York, 
where large numbers of rich people would on no account 
make purchases on an unfashionable street. The result is a 
large surplus gain secured by business sites favorably located, 
and competition transfers the surplus due to location to the 
landowners. This explains what has puzzled so many, name- 
ly, the high rents in American cities as contrasted with Euro- 
pean cities. Our space is vast, but other considerations than 
space govern rents. 

Reflection will show that where the two elements of a high 



Rent 217 

degree of scarcity and desirability enter into the location of 
land on the seashore or in summer resorts on the mountains, 
similar causes will give high rent. On the other hand, it is 
commonly a matter of unconcern where the potatoes and beef 
we eat were produced, and the result is that agricultural rents 
are less governed by situation, transportation being the chief 
consideration in this particular. 

The subject of land rent has been under keen discussion in 
recent years, and an exhaustive treatment would require a 
larger volume than this entire work. The doctrine of Eicardo 
still stands as essential and pivotal in the discussion of rent, 
but many things have been added to it. The writer has not 
seen elsewhere brought out in their significance the peculiar 
features of urban rents which have here been briefly described, 
though it seems to him that we have in these features an im- 
portant addition to the general theory of rent. Special atten- 
tion has been called to the effects produced on rent by im- 
provements, which, on the whole, tend to lower it, whenever 
certain special and peculiar elements do not give land a quasi- 
monopolistic character, as in the case of sites with rare beauty 
or fashionable dwelling quarters. Agricultural rents have 
fallen on account of improvements in cultivation, but still 
more on account of those improvements in the means of com- 
munication and transportation which have increased the 
available land supply. Moreover, attention has in recent years 
been directed to other differential gains, and also to monopo- 
listic gains, which have been growing rapidly; as a result of 
all this, the rent of land, while still of vast theoretical and 
practical importance, has not the relative significance which 
it once had. 



Literature. — Commons, The Distribution of Wealth; Clark, 
Capital and its Earnings; Patten, Dynamic Economics; Hob- 
son, Economics of Distribution. 



218 An Introduction to Political Economy 



CHAPTER III 

INTEREST 

Interest has been under a fire of discussion hardly less 
heated than that which has marked recent work on rent. In 
fact, the two subjects have been involved in the same set of 
considerations. But among all the various and varied con- 
tributions one is preeminent for its general interest and wide 
acceptance. This is a contribution of the Austrian econo- 
mists. Their careful investigation of the function of capital 
has led to the following conclusions: Production by direct 
methods, which require little time for the process, is less fruit- 
ful than production by indirect methods, which require a 
longer time. Thus if I desire but a single drink of water, it 
may well happen that my quickest way of securing it is to bend 
down over some running brook and quench my thirst in sim- 
ple fashion. But if my home is near the stream, and I wish to 
supply myself and family with an abundance of water, I can 
make a given amount of energy more productive if I fashion 
or have fashioned for me a large bucket, a cup, and at my 
house, perhaps, a large tank. This requires more time in one 
sense of the expression, but a given amount of energy is better 
repaid. Again, I may go a step further and purchase a small 
gas engine — which, observe, it has taken time to construct — 
and force the water from the stream to my house through a 
pipe. Always with advance in the use of indirect methods we 
note an increase in efficiency of energy. But almost invariably, 
also, there is as a necessary condition a lengthening of the time 
of the productive process. Compare travel afoot with travel by 
stage and by the steam railway. I can walk twenty-five miles a 
day. This is a direct process. It takes only a day, because 
there are no agents between myself and the result. In a post 
chaise, drawn by horses, I can travel perhaps fifty miles in a 



Interest 219 

day, but here other steps intervene. The chaise must have been 
created, and that means a long process, a longer process than 
will occur to you until you think of the origin of the various 
parts which go to make it up. By the steam railway I can 
travel hundreds of miles in a day, but the attainment of my 
end is by a still more indirect process and involves a longer 
time than in either the first or second case. This substitution 
of indirect methods for direct ones is made possible by capital, 
and an almost universal condition of such a process is a 
lengthened interval of production. The reader must avoid 
the mistake of confusing the entire process of production with 
its final stage or stages. Thus, in the case of the manufacture 
of a watch, if the reader were to regard only the final, or fac- 
tory, stage, he would say, "Why, it takes only a very short 
time to make a watch by machinery, as compared with hand 
manufacture." But if the long and intricate processes of pro- 
duction that have entered into factory and machinery be re- 
garded, it will at once be seen that one watch could be made 
far more quickly by hand than by machinery. But watches in 
general may be manufactured by machinery in less time than 
by hand, which is another way of saying what we have already 
said — that capital makes possible indirect processes of produc- 
tion, and that indirect processes are more efficient than direct 
ones. 

But what connection has all this with interest? A very 
direct connection. It is this that makes interest possible. 
Because indirect processes of production are more productive 
it is possible to lay aside a share of the increased output as 
payment for that agent to which the increase of output is due. 

This, however, explains only one part of the problem of 
interest. We have shown why interest can be paid. Let us 
next see why interest is demanded. The simplest statement of 
the matter is this : Interest represents the difference in value 
between present and future goods. One hundred dollars to- 
day is more valuable than one hundred dollars a year from 
to-day. It may be that when the year has passed, that same 
one hundred dollars may be even more valuable than at the be- 



220 An Introduction to Political Economy 

ginning of the period. But the hundred dollars to-day is more 
valuable in current estimation than the one hundred dollars a 
year from to-day. This is, of course, partly due to the element 
of risk in all human affairs. But aside from the matter of risk 
we know that present enjoyment almost invariably makes a 
greater impression upon our minds than does the prospect of 
future enjoyment, and hence we value present goods above fu- 
ture goods. So great is the difference in valuation among 
primitive peoples that it is almost impossible to get them to 
save even the means of bare subsistence. There has been 
gradual progress among men in this respect. To-day civil- 
ized men are coming to value future goods more and more 
highly, partly owing to greater security, partly owing to the 
fact of a clearer view of future needs, and partly owing to 
greater abundance for the satisfaction of present wants; and 
in consequence the interest rate is falling. 

All this is not inconsistent with what is called the bargain 
theory of interest. A certain amount of capital at any time is 
permanently embarked in production. Other capital is such 
that it can quickly be converted into consumption goods, as 
when a small manufacturing building, if not too highly 
specialized in its construction, may be refitted for a house. 
The extent to which new capital will add to existing produc- 
tion is one of the elements which will determine the estimates 
of men regarding present and future goods. When marginal 
investments of capital, or investments which are open to com- 
petition, increase by a great amount the productivity of 
human effort, the owner of capital is in an advantageous posi- 
tion in bargaining for a high rate of interest ; and particularly 
is this so if the existing stock of capital is comparatively small. 
In such a case he will value present goods above future goods 
at a rate that would not obtain under other conditions. 



Literature. — Cannan, History of Theories of Production 
and Distribution; Clark, Capital and its Earnings; Com- 
mons, The Distribution of Wealth; Hobson, Economics of 
Distribution; Patten, Dynamic Economics. 



Profits 221 



CHAPTER IV 

PROFITS 

What was formerly included under the general name profit 
has by long-continued scientific analysis been found not to be a 
simple thing, but to consist of several elements. Business on 
a large scale has also progressed rapidly in the analysis of the 
older item in business bookkeeping. Even recently one writer 
has defined profit as the "unascertained share of distributed 
produce obtained by the managing capitalist for his invest- 
ment of capital, services, risk, and responsibility." This defi- 
nition is thoroughly in accord with the idea of profit as held 
by John Stuart Mill, but it is probable that most economists 
as well as most business men in large businesses would rather 
call such an aggregate return not simply profit, Jbut "gross 
profit," as we shall explain further. 

Depreciation. — In the first place, we must distinguish the 
amount necessary for replacement of capital destroyed from 
the return to capital. Modern business bookkeeping frequent- 
ly does this by keeping a separate account for what is called 
depreciation. A man can hardly be holding his business well 
in hand who takes as profit from his plant what should be set 
aside or at least designed for replacement. 

Insurance. — The same may be said of insurance. It does not 
seem reasonable to regard as profit an amount of money which 
a business man spends in securing himself against the total 
loss of the plant itself. 

Interest. — Moreover, careful bookkeeping frequently makes 
a separate item of the interest on the plant. Of course, where 
the manager is not also owner it becomes necessary to do this. 
Even where the manager is at the same time the capitalist he 
will frequently wish to know just what he is receiving over and 
above a normal interest on his investment. 



222 An Introduction to Political Economy 

Wages of Superintendence. — The element of wages and 
salaries, of whatever sort, should scientifically be separated 
from profits. Private and public corporations regularly do 
this, and the practice is frequent in large noncorporate busi- 
nesses, where the managing ability is employed, just as is any 
other labor. 

Monopoly Gains. — Even yet the analysis is not complete. 
To make it so we must further deduct any monopoly gains. 
Monopoly gains are a return for a peculiar advantage, and 
form a separate item in distribution, in some respects com- 
parable to the item of rent. 

Conjunctural Gains. — Closely resembling monopoly gains 
in some respects is a class of gains to which later political 
economy has given the name conjunctural. As the name im- 
plies, these are gains resulting from a favorable conjuncture 
of circumstances, which could not have been anticipated. The 
word "conjunctural" has only recently come to have general 
acceptance, though the idea for which it stands had been seen 
more or less clearly before. The word implies any technical, 
legal, economic, or social causes which affect value, provided 
that these causes cannot readily be foreseen. Fluctuations in 
harvest give rise to one sort of conjunctural gains. A simple 
instance would be the gain resulting from the sale of bunting, 
fireworks, and ear-splitting instruments of noise in some small 
village where an unexpected event has given rise to a sudden 
desire for immediate celebration. Here, however, a very real 
difficulty presents itself. In the case just cited the con- 
junctural element can be plainly seen. But in many instances 
the gain is, in part at least, the reward of foresight and 
energy, and is then to be classed as profit. The man 
who makes a fortune by buying suburban property in an un- 
likely neighborhood, because he sees reasons why growth 
should be in that direction, could claim that his gain from, 
the venture was not conjunctural. In real life we have 
all the stages between clever business foresight and pure con- 
juncture. As the late Professor Amos G. Warner pointed out, 
in an article on "California Land Problems," "It is usually 



Profits 223 

on the frontiers of industry that great fortunes are made 
speedily, and a mixture of shrewd foresight and good luck is 
necessary to their accumulation. This is true whether the 
new departure be the introduction of novel methods into an 
old community or of old methods into wholly new territory." 

Pure Profit. — This analysis, then, gives us as our concept 
of pure profit all that is left after deducting the items men- 
tioned. Even the item of pure profit is not a simple one, but 
consists of the two elements which we may distinguish as mar- 
ginal and differential profits. Society must at any time pay 
for the goods which it consumes a price sufficient to afford 
some profits to even the most inefficient managers whose serv- 
ices are necessary to produce the required supply at that price. 
More efficient entrepreneurs will therefore be able to secure a 
greater return in profit, representing the difference in effi- 
ciency between their management and that of the entrepre- 
neurs of marginal efficiency. The first sort of profit may be 
called the necessary or minimum or marginal profit; thQ 
second, the differential profit. In either case, the return is a 
personal one, a return to management as such, independently 
of monopoly advantage, conjunctural gain, or mere wages as 
such. It will be clearly seen that as business becomes more 
and more fully organized, falling more and more into routine, 
as knowledge becomes more widely diffused throughout the 
business community and the world at large, and as govern- 
ment improves in regularity and firmness and honesty of ac- 
tion, pure profits will tend to lower and lower limits. 

Summary. — It may assist the reader to have summarized 
for him the considerations which have just been presented. 
Gross profit as distinguished from pure profit contains at least 
five different elements, and in some cases at least six or 
seven. The items always found in really profitable busi- 
nesses are replacement fund, or fund for depreciation, insur- 
ance, interest, wages of superintendence, and the pure profit 
which we have designated as marginal. The other elements 
often appearing in business are monopoly and conjunctural 
gains and differential profits. 



224 An Introduction to Political Economy 

The percentages of profits and of interest, either separately 
or together, tell us nothing about the distribution of products 
between labor and capital. If we know that interest and 
profits have fallen, this also tells us nothing about the dis- 
tribution of products between the two factors of production. 
In such a case we do not even know that capital and enterprise 
are receiving a smaller relative share than formerly. This can 
only be shown by demonstrating that capital has not increased 
in as great a proportion as the rate of interest or profits has 
fallen. Let us for the present, therefore, "lump" profits and 
interest and call both profits, and let us call the entire return 
profits on capital, although, strictly speaking, part of it is the 
share of the entrepreneur, and is reward for "enterprise." 
On this basis, if profits fall from ten to five per cent, while the 
capital is quadrupled in amount, profits will have increased in 
their total amount one hundred per cent. 

Capital and Capitalization.— We must also distinguish be- 
tween capital invested and capitalization. Capitalization 
means the amount at which a property is valued, and it may 
be ten times the cost of capital actually invested, for it is based 
upon gross profits. When we speak of profits as being ten per 
cent or five per cent we mean profits on free or disposable 
capital, and this rate depends on opportunities for production 
which are still open, not those which have already been seized. 
Let us suppose that the returns on investments which are still 
open to all are about ten per cent, but that the return to a 
telephone company or an electric-lighting company which has 
actually invested $100,000 is $100,000; the undertaking will 
be capitalized at $1,000,000, so as to conceal the actual rate of 
gross profits. As profits fall on new investments open to all, 
capitalization of old and lucrative enterprises rises in propor- 
tion, even where no new capital is invested. One familiar 
form which this takes is "stock watering," but it is also seen in 
higher prices. Thus, if a house yields $1,000 a year, and ten 
per cent is a fair return for house property, it will be valued at 
$10,000; but if profits fall, and five per cent is considered a 
good return, the house will be valued at $20,000 if it still 



Profits 225 

returns the $1,000 a year. This increase of capitalization is 
sometimes an unconscious process, and a man will at times 
feel poorer when he is receiving five per cent on his capitaliza- 
tion of an investment than when he was receiving ten per cent, 
although his capitalization has meanwhile quadrupled with- 
out any additional investment of capital. 

Profits of Monopolies. — It is often said that profits tend to 
equality. This may be true, and, indeed, it probably is true, 
of pure interest in a large, well-supplied market. There are in 
such markets constant fluctuations and a constant tendency 
toward a level, a level always changing, at least slightly. When 
the flow of capital is perfectly free the same tendency may be 
observed with respect to profits in the strict sense, although 
here many obstacles which we may call economic friction ren- 
der the movement toward equality slower and less certain. It 
is the force of competition that brings about this tendency to- 
ward equality. If an entrepreneur in one branch of industry 
is receiving exceptionally high profits, other entrepreneurs, as 
soon as they learn the fact, will direct their capital into that 
channel, and this will tend to make various industries equally 
attractive — to reduce them to a level. Of course, within each 
kind of industry gross profits will vary according to situation, 
and more particularly according to the capacity of the en- 
trepreneur. All this supposes, however, a free flow of capital, 
and it is a peculiarity of modern industrial life that in an 
ever-increasing proportion of the industrial field — that repre- 
sented by natural monopolies and social monopolies — the 
flow of capital is not free, although outside of these favored 
undertakings competition is continually increasing in severity. 
While the ordinary merchant or manufacturer may rejoice 
to receive five or ten per cent, much capital is invested which 
yields, not on capitalization, but on capital, twenty, thirty, 
forty, and even one hundred per cent. This brings us to one 
aspect of the so-called great "social question/' and it shows 
how far from having grasped its full significance are those 
who reduce it merely to a labor problem. It is quite as much 
the merchant's, the manufacturer's, the lawyer's, the teacher's 



226 An Introduction to Political Economy 

problem. It is what its name indicates, the problem not of 
any class, but of society. 



Literature. — Ely, Monopolies and Trusts; Mill, Political 
Economy (unabridged edition), Book II, chapter xvi. Also 
authorities cited in preceding chapters. 



Wages and the Wages System 227 



CHAPTER V 

WAGES AND THE WAGES SYSTEM 

The Standard of Life. — It has been the opinion of many of 
the ablest political economists for over a century that what is 
technically called standard of life, or standard of comfort, 
determines the wages of labor. This means that laborers 
have an habitual standard of life, a certain style of living, and 
that what they receive as wages enables them on the average 
just to keep up this standard. They are able to occupy such 
a sort of dwelling, to wear such clothes, to eat such food, and 
generally to do such things as this standard requires, but no 
more. This idea, expressed as a law, has been called the 
iron law of wages. The array of facts which support this 
conclusion is so overwhelming, is gathered from countries so 
widely separated and from periods so distant from one an- 
other, that it is difficult to resist its acceptance. The iron law 
of wages, however, must not be regarded as being like a law 
in physics, but rather as expressing in a rough sort of way a 
powerful tendency. Among the striking evidences of the 
truth of the theory of the standard of life as the norm for 
wages, the fact is especially noteworthy that, as a rule, it 
seems to fail to benefit the laboring populations on the whole 
and for any length of time for the wife and children to earn 
money, even apart from all other considerations than money- 
getting. The world over, when it becomes customary for the 
wife, or wife and children, to work in factories, it very soon 
becomes necessary for them to do so to support the family. 
The earnings of the entire family in the end just main- 
tain the standard of comfort which had formerly been 
maintained by the wages of the head of the family. Atten- 
tion, for example, has been called to the fact that in the 
textile industries of Rhode Island and eastern Connecticut, in 



228 An Introduction to Political Economy 

which great numbers of women and children are employed, 
the earnings of the entire family are no larger than in other 
industries, such as those in metal, in western Connecti- 
cut, where only the man works. Similarly an increase in the 
length of the working day confers no benefit in permanent in- 
crease of wages, while it has yet to be shown that a reduction 
of the length of the working day ever reduced wages perma- 
nently. On the contrary, it is more likely to raise the stand- 
ard of life, and thus ultimately to raise wages. From this 
principle flow many important conclusions which cannot be 
elaborated in this place. It was probably on account of a con- 
viction of the essential validity of this law that the Hon. A. 
S. Hewitt, when Mayor of New York city, refused his sanc- 
tion to an apparently philanthropic scheme to establish in 
different parts of the city lunch stands where something to 
eat could be obtained for a cent. Probably many political 
economists would agree with Mr. Hewitt in thinking that it 
would in the end do more harm than good. Simply to reduce 
the cost of living will never render men really prosperous. 

This tendency, when called the iron law of wages, has been 
used as a means of agitation to provoke discontent among 
wage-earners, but it applies in a rough kind of way to all 
classes, and to judges and college professors quite as relent- 
lessly as to workingmen. If the standard is what it should be, 
what more can be asked than that we should be able to main- 
tain it ? It should include provision for all real needs and for 
accidents, and for future emergencies, such as disability on ac- 
count of old age. A deposit in the savings bank and a life 
insurance policy ought to be a part of the habitual standard of 
life. The standard of life with the great masses of laborers is 
unfortunately not what it should be, but it can be raised. It 
has been raised in the past, and the true kind of social reform 
cannot be brought about unless it is to be raised still further. 
The more nearly it becomes in all respects what it ought to be, 
the nearer we are to our goal — a goal which, like all ethical 
goals, we can forever approach but never reach. Perfection is 
infinite. 



Wages and the Wages System 229 

The standard of life has at times fallen, and at times re- 
quires a tremendous effort to maintain it, and a still mightier 
effort to raise it. In general, it may be said that there is 
greater difficulty in raising the standard than in maintaining 
it when once raised, and that there is greater persistence in 
maintaining a high standard than a low one. People of high 
culture, resulting from a high standard, have greater desire to 
maintain the standard, and greater power to effect their desire. 
In these days it requires a struggle for our laboring classes to 
maintain their standard against the onslaught of cheap and 
degraded labor pouring in upon us from southern Europe. It 
is on this account, among others, that it is desirable to restrict 
immigration to some extent, since a lower standard of life 
among the masses of the people means a lower civilization. 
When the struggle to maintain a standard of life is not too se- 
vere it has beneficial results which ought not to be overlooked. 
If the struggle is successful it results in increased effi- 
ciency, and is a spur which human nature, when too sluggish, 
needs. In some cases the struggle has this result in the 
United States. Thus a large proportion of native Americans 
abandon pursuits invaded by those with a lower standard of 
life, and attempt elsewhere to keep their standard. A part of 
those who are thus displaced succeed, and attain a much 
higher standard than the old. Others cannot make the ascent, 
and become a dissatisfied element in society. 

The standard-of-life theory of wages, however, must be 
interpreted in a very large way in order to be a true theory. 
Recently much has been said about a bargain theory of wages, 
and in some respects this is a better mode of approach in the 
discussion of the question. Each great theory of wages, indeed, 
contains elements of truth and may be looked upon as a mode 
of approach. If we examine thoroughly the bargain which 
determines wages, we must ask ourselves what are the forces 
lying back of the bargain ; and we find that when we have re- 
gard to the general level as distinguished from fluctuations, 
one of the most powerful of these forces is the standard of 
life. This signifies that those improvements which promise 
16 



230 An Introduction to Political Economy 

permanent benefit must act on the feelings, intelligence, and 
habits of the masses of men, and that all schemes which do not 
affect character accomplish little or nothing in the end. 

Formerly a theory of wages was generally held which was 
designated as the wage-fund theory. This made wages de- 
pendent exclusively on accumulations of capital set aside for 
wages. In its rigid form this theory has been discarded, but it 
contains an element of truth. Wages at a given time and place 
do find, not rigid, but somewhat elastic, limits in past accumu- 
lations of wealth. 

A productivity theory of wages has also found advocates, 
and this contains important elements of truth. As subsist- 
ence sets the lowest possible limit, productivity in excess of 
cost sets the highest limit. The greater the production of 
wealth the higher the limits which the wage-earner may reach 
in his bargain. Space forbids further amplification along 
these lines. 

The Law of Distribution. — In the struggle for the divi- 
sion of products the most slowly increasing factor is at an 
advantage. When the product is once given, the more one 
takes the less is left for others. If you take three quarters of 
the loaf, only one quarter is left for me, and no fine phrases 
can alter this fact. The struggle made by interest and rent 
seems to be a quiet, regular sort of struggle, obeying strong 
tendencies; while the active, noisy, and at times violent 
struggle takes place when it comes to dividing between 
labor and capital what is left after paying interest and rent. 
Now, the standard of comfort, or the standard of living, 
has this implication, that population will not increase be- 
yond the point where the struggle can be hopefully main- 
tained. When, in a progressive country, the standard of 
wages is threatened, efforts of many kinds are put forth 
to prevent a fall in it. Our Chinese Exclusion Act finds 
its explanation in the apprehensions entertained in regard 
to the American standard of life. Moreover, if the strug- 
gle begins to be severe, fewer people will marry; those 
who do marry will prolong the years of celibacy; on ac- 



Wages and the Wages System 231 

count of increased want, the mortality of children, always 
great among the poor, will increase; and thus in one way 
and another the labor factor will increase more slowly. Other- 
wise one of two things must happen : either new openings for 
labor must be found or the standard must fall. 

Differences of Wages. — We have different standards of life 
in different occupations, with corresponding differences of 
remuneration, whether paid as wages or salaries. What de- 
termines differences of wages of various occupations? All 
sorts of fanciful replies have been given. The differences are 
largely historical. To understand them we must go back to a 
man's grandfather or great-grandfather. Some one has in- 
deed said that true wisdom is shown in the careful choice of 
one's grandfather. Occupations where remuneration is high 
are so difficult to enter that few are able to surmount the 
difficulties. Thus peculiar and rare qualities may be required, 
or opportunities which come from favorable environment, or 
an expensive training, which few parents are at once able and 
willing to give. What one is depends largely on one's parents, 
and, yet, unfortunately, one has no voice in the selection of 
one's parents. We who have been blessed in this respect ought 
to feel that we owe a special duty to humanity. 

It should be noted here that a good system of public educa- 
tion continually renders more possible the free choice of occu- 
pations. Education gives greater knowledge regarding the 
advantages and requirements of different occupations at the 
same time that it puts its possessor in a position where he can 
more readily realize the one and meet the other. While the 
various sorts of labor are almost infinite in number and va- 
riety, they are nevertheless susceptible of a fairly distinct 
classification. The classes have commonly been called "non- 
competing groups." Perhaps the best naming of the different 
classes or groups is that made by Professor Giddings, as fol- 
lows: automatic manual, responsible manual, automatic 
mental, responsible mental. Among these groups very little 
competition exists, and the greater part of the actual competi- 
tion is a matter of years, resulting, as it must, from the action 



232 An Introduction to Political Economy 

of parents in preparing their children for one or the other of 
the groups. 

Adam Smith enumerated the following five causes for dif- 
ferences of wages in different employments : First, the agree- 
ableness or disagreeableness of the employments themselves; 
second, the costliness or cheapness or the difficulty and ex- 
pense of learning them; third, the constancy or incon- 
stancy of employment in them; fourth, the small or great 
trust which must be reposed in those who exercise them ; and, 
fifth, the probability or improbability of success in them. But 
all this, to a great degree, presupposes that grown men, per- 
fectly free to select their occupations — free not merely so far 
as the law is concerned, but free so far as their command of 
resources is concerned — look over the entire industrial field 
and choose their employment. An English writer, point- 
ing out that occupations are very generally selected by 
parents, adds : "When a person is one of the large number who 
have been in childhood badly nourished, badly housed, badly 
clothed, badly educated, and not at all trained to any par- 
ticular occupation, let no one prate to him of his freedom to 
choose what occupation he thinks proper. His legal freedom 
to choose many occupations is about as much use to him as his 
legal freedom to fly with wings in the air." Nevertheless, 
with proper qualifications, what Adam Smith says explains 
many differences in wages. 

Piecework. — Wages are usually paid by time or by the 
piece. The labor of a day, week, or month is paid for at an 
agreed price, or a price is paid for each piece of work done, 
as for each bushel of corn husked. Payment by the piece 
would seem to be fairer for all parties, but in manufactures 
abuses have so generally been connected with it that it is op- 
posed by many intelligent artisans, and careful political econ- 
omists will be slow to give it unqualified approval. Physicians 
testify that by producing feverish over-exertion it has in cer- 
tain quarters shortened average life materially, and there is a 
proverb in Saxony to the effect that piecework is work that 
murders the wage-earner. Piecework has frequently been used 



Wages and the Wages System 233 

to evade or to break down regulations and laws limiting the 
time of work, and more frequently still to bring about a reduc- 
tion of wages. The workers strain every muscle and nerve to 
earn high wages, and after a high rate of speed has been se- 
cured the price per piece is reduced, sometimes not once but 
repeatedly. Peculiarly cruel and aggravating cases of this kind 
have come under the writer's observation. When not con- 
nected with abuses, payment by piece has many advantages, 
and is at times preferable for all parties. 

The Sliding Scale. — A sliding scale of wages, intro- 
duced by a powerful trades-union, the "Amalgamated As- 
sociation of Iron and Steel Workers/' chiefly in Pennsylvania, 
appears to have given general satisfaction and to have kept 
the industrial peace better than the ordinary wages system. 
According to this plan, wages vary with the selling price of 
the product, and thus labor shares to some extent in the pros- 
perity of capital. The sliding scale is known elsewhere in 
this country and in England, but while it has met with a good 
deal of favor from economic writers, there are only very few 
circumstances in which such an arrangement is feasible. 

Arbitration and Conciliation have accomplished much for 
the preservation of industrial peace wherever thoroughly and 
honestly tried. Sometimes voluntary boards are appointed by 
employers and employed to adjust differences, and sometimes 
they are appointed by public authorities. New York state 
and Massachusetts have permanent boards of arbitration, and* 
both have accomplished good. The New York board appears 
to have inadequate powers, but the Massachusetts board, which 
must be summoned by local authorities and which has -power 
to get at all the facts, has achieved noteworthy results. It is 
more effective than police or militia, and is less expensive for 
preserving peace in the excitement naturally connected with 
wages controversies. 

Until very recently arbitration has always been voluntary. 
The findings of arbitration boards were legally binding upon 
neither employers nor employees, and gained their strength 
from the awakening of public interest and the enlightening 



234 An Introduction to Political Economy 

of the public mind as to the merits of the controversy which 
they considered. Within the past few years compulsory arbi- 
tration has been given a trial on a large scale in New Zealand, 
the modern laboratory of social experiments, and, according 
to the opinion of several able investigators, it has proved its 
value and practicability. In the light of this fact the general 
opposition which economists and others have hitherto mani- 
fested toward compulsory arbitration may be lessened, or pos- 
sibly even changed to active support. The question may be 
regarded as still open. 

Factory Inspection. — Labor legislation, honestly conceived 
and properly enforced by factory inspectors, has been pro- 
ductive of incalculable good. England is the model country 
in this respect, and in our own Union Massachusetts is the 
banner state. Labor legislation should aim to keep children 
away from regular factory work and in schools, to restrict to 
its lowest terms the employment of women, to limit the work- 
ing day for married women and to give them a Saturday half- 
holiday, to shorten the working day for young persons under 
eighteen to the length prescribed by physiology and hygiene, 
and to give them also a Saturday half-holiday, to compel em- 
ployers to fence in dangerous machinery and otherwise guard 
against accident, and by employers' liability acts to render 
them pecuniarily responsible for accidents to their employees. 
We have here a goal, and no country ever yet suffered in in- 
ternational competition by approximations to it. England, 
which has come nearest to it, has been the most dreaded coun- 
try on the globe in international competition, and Massachu- 
setts, which has gone farther .than any one of our states in this 
direction, is one of the richest in the Union. Economists say 
that England's action has given her a stronger and better la- 
boring population, and has established her industrial position 
upon a firmer foundation than ever. Moreover, Germany, 
which has within the last quarter of a century been climbing 
with great rapidity to a position of industrial preeminence, is 
precisely the country where regulation of industry by legisla- 
tion is most careful and most detailed. 



Wages and the Wages System 235 

Literature. — Clark, Distribution of Wealth; Davidson, Bar- 
gain Theory of Wages; Hobson, Economics of Distribution; 
Lloyd, A Country without Strikes (on compulsory arbitra- 
tion in New Zealand) ; Walker, Wages Question. See also 
authorities cited in preceding chapters. 



236 An Introduction to Political Economy 



CHAPTEE VI 

LABOR ORGANIZATIONS 

The old mediaeval guilds were organizations of persons rep- 
resenting all the factors of production. Employers and em- 
ployed, united in one body, regulated production, but the 
control rested chiefly with the masters. Modern labor organi- 
zations, on the contrary, embrace, as a rule, only one of the 
factors, the employees, and their purpose is to promote the 
interests of this one factor whenever these interests clash with 
those of the employers. 

Trades-Unions and Knights of Labor. — Labor organizations 
may be divided into two classes, and as a matter of fact they 
are so divided to-day in the United States. These classes are 
represented by the trades-unions and the Knights of Labor ; in 
England, by the new and old trades-unionism. The trades- 
unions are primarily organizations of skilled artisans. Ac- 
cording to the old trades-union idea, each craft should be or- 
ganized by itself. The Knights of Labor are, according to 
their original idea, organizations of all employees, both skilled 
and unskilled, regardless of trade. They aimed to break down 
the barriers to common action found in differences of occupa- 
tion. The Knights of Labor, in their earlier days, took a broad 
outlook upon society, and sought to accomplish greater things 
than did the trades-unions. The trades-unions assume a differ- 
ence of interest between employers and employed. They are, 
as it were, a fighting body. It must be granted that this diver- 
gence of interests actually exists, and that fighting bodies 
often preserve peace. "If you would have peace, prepare for 
war," is an old maxim, which is not without application to the 
industrial field. But the Knights of Labor looked beyond a 
period of conflict to a union of productive factors which should 
be peaceful. They hoped in some way to see labor and capital 



Labor Organizations 237 

united in the same hands. They desired to make capitalists of 
laborers, and to organize production on a cooperative basis. 
It is doubtless on account of this ultimate aim that they ad- 
mitted employers, many of whom were members, and also the 
professional classes, a considerable number of teachers, jour- 
nalists, and preachers being also at one time members of their 
organization. The Knights of Labor were in so far a return 
to the principle of the old guild organization. 

Knights of Labor and trades-unions have both modified 
their original programme. The trades-unions have united in 
larger federal organizations, first in the Central Labor Unions 
of our cities, and later in the national body, the American 
Federation of Labor. This national body has also made pro- 
vision for the organization of unskilled workingmen, and for 
local unions of workingmen of different trades where those 
engaged in each trade are too few for separate organization. 
The Knights of Labor, on the other hand, organized separate- 
ly a considerable number of trades in what were called "dis- 
trict assemblies," and thus recognized more largely than they 
were at first inclined to do the principle of federation with 
separate crafts as a basis. 

The Knights of Labor started out with high ideals, as al- 
ready stated. But soon they became involved in a bitter con- 
troversy with labor organizations of the older type, especially 
with those which made up the American Federation of Labor. 
It is not necessary, now and here, to enter into the causes of 
this controversy, nor need we consider the methods used by 
the two parties to the feud. Suffice it to say that the order of 
Knights of Labor was greatly weakened thereby. Further- 
more, the Knights of Labor became involved in many strikes 
which were attended with disorder and violence, and on this 
account they suffered still more. Finally, factional struggles 
have arisen within the order, and the spirit manifested in 
these has been too frequently such as to make men forget their 
early ideals. Thus, in one way and another, the Knights of 
Labor, through misfortune and folly, have lost a large part of 
their former strength, and now appear to be nearly everywhere 



238 An Introduction to Political Economy 

quite insignificant. In the history of the American labor 
movement they occupy a prominent position, and their activity 
in the past will be one of the forces giving it shape in the 
future. 

Growth of Labor Organizations. — It is usually estimated 
that more than a million workingmen in the United 
States are members of labor organizations. The number, of 
course, varies. A period of prosperity for the organizations 
has generally been followed by one of reaction. Eeaction al- 
ways terminates in a new advance, and thus far in the United 
States each new advance has carried the labor organizations 
farther forward than ever before. The present is a period of 
growth. 

Farmers' Organizations. — The organizations of farmers, 
the Patrons of Husbandry and the National Farmers' Al- 
liance and Industrial Union of America, are more like the 
old guilds in this, that they are organizations of independent 
producers designed to protect their interests against attacks 
from other social classes. Eecent years have, however, wit- 
nessed an approach of labor organizations and farmers' or- 
ganizations to each other for the attainment especially of com- 
mon political aims. For several years local groups of farmers 
in almost all sections of the country have combined for the 
sale of farm produce and for the purchase of farm imple- 
ments and home supplies. This cooperation seems in the 
main to have been successful. In California, particularly, 
there are large and strong organizations for the sale of fruit. 

Labor Organizations a Natural Growth. — Labor organiza- 
tions are not forced products. They have grown up almost 
spontaneously. They have arisen naturally out of modern 
industrial conditions. Wherever capital is a separate factor 
in production, and is organized on a large scale, labor in- 
evitably organizes sooner or later in order that it may stand 
on an equal footing and make labor contracts advantageously. 
Let us suppose that one capitalist employs a thousand men. 
If these men are not organized, each man individually treats 
with all the capital in the establishment. All the capital is 



Labor Organizations 239 

represented by one man, but one wage-earner represents but 
one thousandth part of the labor force, and he is not in a posi- 
tion of equality. The laborers therefore unite their labor, and 
speaking through one representative, place all the labor 
against all the capital. In other words, "collective bargain- 
ing" is substituted for the former "individual bargaining" 
with employers. This is something which so naturally sug- 
gests itself that we find labor organizations in all modern 
lands. 

Opposition to labor Organizations. — Labor organizations 
met at first with violent opposition, and it cannot be said that 
in their earlier stages or even in their later growth this oppo- 
sition has by any means been groundless. However, whatever 
bad traits naturally characterize labor organizations are aggra- 
vated so long as those organizations are obliged to struggle for 
existence. Whenever the fact of their right to exist is frankly 
acknowledged, and employers, ceasing to persecute them or 
their officials, recognize the man who treats in a representative 
capacity for the sale of labor as courteously as they would an 
agent for the sale of corn or wheat; finally, whenever courts 
cease to harass them with legal chicanery, as courts long did 
in England — they tend to become strong and conservative. 
The fact is undoubted that most serious abuses and outrages 
have attended the progress of labor organizations, but, after 
all, the unions have simply exhibited weaknesses of sinful 
human nature, weaknesses which have been observed in more 
frightful manifestations in those other organizations, never- 
theless excellent, which we call Church and State. The true 
course is to recognize the beneficence of the principle of or- 
ganization and to contend only against abuses. It can scarcely 
be too much to say that this is the opinion of nearly all com- 
petent observers in England, Germany, and the United States. 
The following quotation about labor organizations from Work 
and Wages, by the late Professor Thorold Eogers, of Oxford, 
not only expresses the view of many scholars and business 
men, but also illustrates a common change of attitude on the 
part of fair-minded persons who have seen previous preju- 



240 An Introduction to Political Economy- 

dices against labor organizations removed by a careful exam- 
ination of their claims: "These institutions were repressed 
with passionate violence and malignant watchfulness so long 
as it was possible to do so. When it was necessary to relax 
the severities of the older laws they were still persecuted by 
legal chicanery whenever oppression could on any pretext 
be justified. As they were slowly emancipated, they have con- 
stantly been the object of alarmist calumnies and sinister pre- 
dictions. I do not speak of the language of newspapers and 
reviewers, which simply reechoed the passions of the hour ; far 
graver were the allegations of Senior and Thornton. ... I 
confess to at one time having viewed them suspiciously; but 
a long study of the history of labor has convinced me that they 
are not only the best friends of the workman, but the best 
agency for the employer and the public ; and that to the exten- 
sion of these associations political economists and statesmen 
must look for the solution of some among the most pressing 
and difficult problems of our times." It may be proper to state 
that while the author does not expect from labor organizations 
alone as much as is implied in the quotation, yet his own ex- 
perience in the matter of having his opinion changed by care- 
ful study has in the main been the same. 

Space is too limited to permit an explanation of the mis- 
apprehensions of the general public in regard to labor organi- 
zations. One of them is that innocent and peace-loving work- 
ingmen, perfectly contented, are misled by agitators who have 
been placed at the head of labor organizations. Careful ob- 
servation will show that the influence of labor leaders is, on 
the whole, conservative, and that strikes originate among the 
masses and are generally resisted by the leaders as long as it 
is possible. It will also show that leaders are more ready to 
terminate strikes than are a large proportion of the "rank and 
file" in the organizations. 

Success and Failure of Strikes. — Strikes produce harm, and 
every effort should be made to avoid them. They are, how- 
ever, successful in more cases than is ordinarily supposed, and 
when occasionally a decided victory is scored the gain is im- 



Labor Organizations 241 

mense. An agitation of a few weeks and a strike of a few 
days, together with an act. of the legislature, once established a 
reduction of the hours of labor from seventeen to twelve for 
the hundreds of street-car employees in Baltimore. This is 
probably an advantage permanently secured. Other illustra- 
tions might be given. Nothing is gained by shutting our eyes 
to such facts. 

Even where strikes are apparently failures they may yet 
be successful in so far as they inspire sufficient fear of a recur- 
rence to exact fairer treatment from unwilling and unjust 
employers. 

It has frequently been said that strikes are rarely successful, 
except when they coincide with a period of improving busi- 
ness, and that strikes to raise wages are more often successful 
than those which aim to prevent a reduction. In fact, it has 
even been claimed that employers have in some cases encour- 
aged a strike, when they have desired to close their works 
temporarily on account of poor business. In this way, it has 
been argued, they are enabled, when they are ready to re- 
sume business, to drive a better labor bargain with their men. 
These are simply a few of the considerations which the careful 
thinker along these lines will be able to carry out to greater 
length. 

Violence is disastrous, and the welfare of the masses should 
always rather be secured by peaceful measures. While con- 
demning in deserved terms the violence which too often ac- 
companies strikes and which reacts against workingmen, it is 
only fair to recognize the fact that this violence is in part due 
to the criminal classes, which improve such opportunities for 
disturbance. It is manifest, however, that, even so, it is only 
another argument against strikes wherever they can be 
avoided, and for the settlement of differences between labor 
and capital by peaceful arbitration. 

Temperance. — Nearly all labor organizations are temper- 
ance societies, and many of their officers are total abstainers. 
The organizations have without doubt greatly diminished in- 
temperance among those who belong to them. 



242 An Introduction to Political Economy 

Educational Value. — The educational value of the organi- 
zations is also noteworthy. The debates and discussions which 
they foster stimulate the intellect and do much to counteract 
the deadening effects of a widely extended division of labor. 

Labor organizations bring men, and frequently also women, 
together and furnish opportunities for social culture. Tempta- 
tions to coarse indulgence are thereby lessened, and an im- 
portant side of human nature receives better opportunity for 
development. 

It may be hoped that labor organizations are preparing 
the way for a better civilization. Certainly one of the most 
hopeful features of the situation is the willingness of organ- 
ized workingmen to listen to strong and manly words from 
those who understand their real purposes, who go among them 
and, with sympathy for their just aspirations, endeavor to 
help them to distinguish between the foolish and the wise, 
the wrong and the right, to show them how to pursue the good, 
and to inspire them with faith in that righteousness which 
alone can exalt the masses in a nation and the nation as a 
whole. 



Literature, — Adams, Modern Farmer; Clark, Philosophy of 
Wealth, chapter viii, on "Wages as Affected by Combinations ;" 
Ely, Labor Movement in America (giving a sketch of the 
movement up to 1886, but with a characterization which the 
author now regards as having been somewhat too favorable) ; 
McNeill, The Labor Movement, the Problem of To-day; Bea- 
trice and Sidney Webb, Industrial Democracy; also the paper 
called The American Federationist. 



Profit-Sharing and Cooperation 243 



CHAPTEE VII 

PROFIT-SHARING AND COOPERATION 

Profit-Sharing in the United States. — Labor organizations 
strive to secure higher wages for workingmen than they would 
otherwise obtain, and thus to increase their share of the prod- 
ucts of industry. Profit-sharing goes a step further than the 
usual demand of labor organizations. Those who advocate 
profit-sharing wish laborers to secure a portion of profits in 
addition to ordinary wages. It is held that this arrangement 
promotes economical use of material and machinery by em- 
ployees, generally increases their zeal and efficiency, and 
hence results in a larger total product and a larger revenue 
for the wage-receivers. Profit-sharing has been extensively 
tried in the United States, and it has been successfully intro- 
duced by some of the large productive establishments in the 
country. The testimony of American employers who have tried 
it is generally in its favor, although some of them have not 
found that it quite realized their expectations. Several in- 
fluential employers appear to be enthusiastic in their praise 
of its practical working, and a member of a firm which has 
distributed over one hundred thousand dollars of profits to 
its employees wrote to the author that he and his partners 
consider it the best investment that they ever made. He 
thinks that they have the most loyal set of workingmen in 
the world. Instances recorded in a period of three months 
showed that at least ten thousand workingmen had in that 
period been admitted to a share in profits in the United States. 

Profit-sharing may be extended to capital-sharing — partial 
ownership of capital by workingmen and participation in 
management. The large manufacturing establishment of 
Godin, in Guise, France, serves as the best example which oc- 
curs to the author. M. Godin gradually educated a large body 



244 An Introduction to Political Economy 

of working-people to that point where they could take a part in 
the management of his large business, and at the same time en- 
couraged them to acquire a part of the capital. According to 
the latest information which has reached the author the work- 
ingmen have finally acquired and now manage the entire 
business. 

If we call industry, as ordinarily organized in our great 
mercantile and manufacturing establishments, a form of des- 
potism, we may call an establishment where laborers partici- 
pate in capital ownership and management, under the chief 
control of some one who is recognized as an industrial superior, 
a constitutional monarchy. These terms, although indicative 
of mere analogies, are, after all, instructive. The despotic 
principle, the one-man power, both in politics and in industry, 
is an excellent thing in its own time and place, and in industry 
it has necessarily continued longer than in the political sphere. 
It is a phase of development, but it ought not to be regarded 
as final. A large part of the industrial troubles of modern 
society undoubtedly find their origin in the fact that develop- 
ment of the economic department of social life has proceeded 
more slowly than the development of other departments. Else- 
where the despotic principle has been softened or displaced, 
whereas in the economic sphere it still continues and forms a 
discordant element. Yet it is difficult for most of us to see 
how for a long time to come we can wholly dispense with the 
one-man principle in industry. It should, however, be soft- 
ened as far as practicable, and men should be gradually 
trained to understand industrial republicanism or democracy. 
M. Godin has set a noble example. As opposed to "industrial 
despotism" and "industrial monarchy," "industrial democ- 
racy" means self-rule, self-control, the self-direction of the 
masses in their efforts to gain a livelihood. Industrial de- 
mocracy is industrial self-government, and this is found in 
pure cooperation. 

Cooperation is of two kinds: coercive, which means co- 
operation controlled by governmental action, and volun- 
tary. We have here to do with voluntary cooperation, and this 



' Profit-Sharing and Cooperation 245 

is what is usually meant when cooperation is spoken of. 
Workingmen combine their own capital, purchase their own 
plant, manage their own affairs in their own way, at their own 
risk, sharing profit or loss as the case may be. This is called 
productive cooperation. But we have also what is called dis- 
tributive cooperation. Distributive cooperation means co- 
operation in distribution, not in the sense in which the word 
is used ordinarily in political economy, but in the sense in 
which we might speak of a merchant's activity. He distributes 
wares. Distributive cooperation refers to retail and wholesale 
trade, and is, after all, only an imperfect form. Purchasers 
of wares, groceries, dry goods, etc., combine to purchase what 
they need, and thus save profits. They form a stock company, 
subscribe for shares, employ a manager and clerks who often do 
not even share in profits, and start a business. Profits are some- 
times divided only on shares, but the approved way is to pay 
a moderate interest on capital and to divide profits between 
stockholders and customers, the latter sharing in proportion to 
purchases, the division being made at the end of stated inter- 
vals. Some establishments in Great Britain, and doubtless 
elsewhere, carry out the full programme, and give employees 
a share of the profits. Profits are thus said to be divided 
among capital, custom, and labor. 

In England and Scotland distributive cooperation has suc- 
ceeded better than productive cooperation, which has, however, 
met with some success. France appears to have succeeded 
better than England in productive cooperation. Some in- 
stances of success in the United States are recorded, and many 
undertakings have been partly successful ; in other words, they 
have succeeded as business undertakings, but have abandoned 
wholly or in part the cooperative principle. This is the case 
with a large stove foundry which was started as a cooperative 
foundry, and in which some workingmen or their heirs still 
own stock. One of the strikers among the workingmen in this 
establishment, in a difficulty which arose, owned seven thou- 
sand dollars' worth of stock. The managers seemed to take 
it much to heart that he should strike, but it is hard not to 
17 



246 An Introduction to Political Economy- 

feel a certain admiration for him, as he placed the union of 
his fellow-employees above his interests as a capitalist. A 
good example of pure cooperation is afforded by the three co- 
operative barrel manufacturing companies in Minneapolis, 
which together have an output of nearly two million barrels 
annually. Pure cooperation, when well established, prevents 
strikes by completely identifying the interests of labor and 
capital. It stimulates energy and encourages thrift. The 
self-interest which usually animates only the employer here 
animates all cooperators. No slighting of work can be toler- 
ated, and, eye-service vanishing, much labor of supervision is 
done away with. On the other hand, however, divided coun- 
cils often render the movements of such a business clumsy, and 
action cannot be so quick and decisive as when one man acts 
on his own responsibility. Failures of cooperation have gen- 
erally been due to moral defects on the part of workingmen. 
It has been difficult for them to act together harmoniously, 
and prosperity has often produced disintegration. Wherever 
cooperation has succeeded, however, it has produced excellent 
effects on character. It is a test, but when the business stands 
the test it reacts beneficially on the cooperators. It makes 
men diligent, frugal, intelligent, and considerate of the rights 
of others, as well as of their own. Cooperation and temper- 
ance go hand in hand, as has been universally observed by 
those who have studied the matter. 

It was once thought that corporations could not succeed, 
and even Adam Smith decided against them after a long 
a priori argument, but the inherent advantages of corporate 
industry have after a long struggle made themselves manifest, 
and corporations are in very great measure replacing the in- 
dividual in business. In the same way, it is believed by some 
students of the subject that the inherent advantages of co- 
operation will sooner or later make themselves felt, and after 
a period of adversity, of struggle, and of slowly increasing 
success cooperation will finally gain industrial supremacy; 
thus uniting harmoniously labor and capital and ushering in 
an era of industrial democracy. 



Profit-Sharing and Cooperation 247 

Literature. — Cooperation in the United States (a volume 
published by the Johns Hopkins University) ; Gilman, Profit- 
Sharing; Beatrice Potter (Webb), The Cooperative Move- 
ment in Great Britain; Beatrice and Sidney Webb, Industrial 
Democracy; articles "Profit-Sharing" and "Cooperation" in 
the Cyclopaedia of Social Reform (edited by W. D. P. Bliss, 
an extremely useful book, especially for the general reader) . 



248 An Introduction to Political Economy 



CHAPTEE VIII 

SOCIALISM 

Those who desire industrial democracy — not prematurely, 
but in its own time — are many, and they include some of the 
best economists. There are, however, different ways by which 
it is proposed to attain the desired goal. One of these ways 
is voluntary cooperation for all competitive pursuits, and gov- 
ernmental activity for monopolistic undertakings. Another 
one of these ways is called socialism. Socialism means coer- 
cive cooperation not merely for undertakings of a monopo- 
listic nature, but for all productive enterprises. Socialists 
seek the establishment of industrial democracy through the 
instrumentality of the state, which they hold to be the only 
means for attaining the end. Socialism contemplates an ex- 
pansion of the business functions of government until all the 
great dominating kinds of business are absorbed. Such busi- 
ness is then to be regulated by the people in their organic 
capacity, every man and every woman having essentially the 
same rights which any other man or any other woman has. 
Our political organization is to become an economic industrial 
organization, controlled by universal suffrage. Socialism 
would make civil service employees of all citizens, and would 
remunerate them in such manner as should, in view of all 
the circumstances, appear to the public authorities to be just. 
Private property in profit-producing capital and rent-produc- 
ing land would be abolished, and only private property in in- 
come would in the main be retained. What is desired, then, is 
not, as is supposed by the uninformed, a division of property, 
but a concentration of property. The socialists do not com- 
plain because productive property is too much concentrated, 
but because it is not sufficiently concentrated. Socialists con- 
sequently rejoice in the formation of trusts and combinations, 



Socialism 249 

holding that these are a development in the right direction; 
that is, toward socialism. 

There are four characteristic elements in socialism: first, 
the common ownership of the means of production; second, 
the common management of these means of production; third, 
the distribution of the annual product of industry by common 
authority; fourth, private property in income. Socialists 
make no war on capital, strictly speaking. No one but a fool 
could do such a thing. What socialists object to is not capital, 
but the private capitalist. They desire to socialize capital and 
to abolish capitalists as a distinct class by making everybody, 
as a member of the community, a capitalist — that is, a part 
owner of substantially all the capital in the country. 

Socialists say that labor creates all wealth. No rational 
socialist means thereby to deny that land and capital are fac- 
tors of production, but as these are only passive factors the 
socialist holds that their owners ought not to receive a share 
of the product unless they personally are useful members of 
the community. Labor is the active factor, and all production 
is carried on for the sake of man. Land and capital are simply 
the tools of man. Socialists admit that the owners of these 
tools must receive a return for them when industry is organ- 
ized as it is now ; hence they desire that these tools should be- 
come social property. They wish to make of universal appli- 
cation the command of the apostle Paul: "If a man will not 
work, neither let him eat." 

Distributive Justice. — The central aim of socialism, the 
pivotal point, is distributive justice. While it seeks to secure 
more efficient methods of production, it makes its central 
thought the just distribution of actual production. The ideas 
of socialists as to what constitutes justice are, however, not 
harmonious. Some say that equality in distribution is justice ; 
others, distribution in proportion to real needs, so that each 
may have the economic means for his completest development, 
while still others say that justice means distribution in pro- 
portion to merit or service rendered — but the service of the 
individual, not of his ancestors. 



250 An Introduction to Political Economy 

What Is Socialistic? — It ought not to be hard to picture 
socialism to one's self. Governments own the post office. 
Nearly all governments own the telegraph. Nearly all own 
the wagon roads. Some own the canals and railways. Many 
governments own factories. Probably every national govern- 
ment does at least a little manufacturing. Many governments 
cultivate forests, and some cultivate more or less arable land. 
To picture to ourselves socialism pure and simple, therefore, 
we have only to imagine an extension of what already exists 
until a point is reached where a society, through its govern- 
ment, cultivates the land, manufactures the goods, conducts 
the exchanges, and carries on, in short, every productive enter- 
prise. Only such private industry would be permitted as 
would not interfere with the dominating power of society in 
production and distribution. Thus there might exist here 
and there a private press supported from the income guaran- 
teed to the individual by the state. 

Socialism is compatible with a centralized government, but 
also, and, indeed, even more naturally, with a decentralized 
government. Some functions would in the case of the decen- 
tralized government fall to the minor civil divisions, others to 
states, others to federations of states, and even to international 
federations. 

On the other hand, surely not every public activity is social- 
istic. Properly speaking, that only can be considered social- 
istic which tends to render government dominant in produc- 
tion. Does a measure tend to the suppression of individual 
production and production by voluntary associations of indi- 
viduals and to the absorption of production by government? 
Then it is socialistic ; otherwise not. This is the only way to 
distinguish between socialistic and nonsocialistic, or even anti- 
socialistic, measures. This furnishes us with a rational basis 
for judgment. If we are socialists, we will favor socialistic 
measures ; but if we are opposed to socialism, we will at least 
be inclined to reject socialistic measures. Are compulsory 
education and free schools socialistic ? No ; they are decidedly 
antisocialistic. They develop capacity for self-help, and en- 



Socialism 251 

able those who grow up under their influence to make the 
best of existing institutions. They are a conservative force. 
Are gas works, electric-lighting works, water-works, and the 
like, when owned and operated by municipalities, socialistic ? 
No; for they are in line with a modern tendency to separate 
sharply the industrial functions of private persons from the 
industrial functions of the politically organized community. 
There is a sound principle at the foundation of this tendency. 
The conviction is gradually being forced upon us by science 
and actual experience that most of those businesses which are 
natural monopolies must in the end be owned and operated by 
government, while outside of this field there is a sharply de- 
fined territory in which businesses flourish only in the atmos- 
phere of private enterprise and free competition. If we sepa- 
rate thus on rational principles the private from the public 
industrial sphere, we lay the strongest possible foundations 
for the existing order, instead of letting things drift in hap- 
hazard fashion into chaos. 

The Strength of Socialism. — Socialism makes perhaps its 
strongest claims in its plea, first, for a scientific organization 
of the productive forces of society, and, secondly, for a just 
distribution of annual social income. When it is said that the 
present production of economic goods is small in proportion 
to population, socialism replies : "Naturally enough. Compe- 
tition is wasteful. Two railways are built when one would 
suffice. Two trains run parallel between two cities where one 
would serve the public equally well. Three times as many 
milk wagons, horses, and drivers are required to serve the 
people with milk as would suffice if the milk business were or- 
ganized on the plan of the mail distribution business in cities. 
Look at the stores, wholesale and retail, and see the waste of 
human force. Millions of dollars are annually expended in 
advertising, which would be unnecessary in a socialist state. 
Without competition the whole dry goods and grocery business 
could be carried on with a third of the present economic ex- 
penditure. Eeflect on all the idle classes in modern society. 
Socialism would set everybody to work, and, making each one 



252 An Introduction to Political Economy 

dependent on his own exertions for success, would stimulate 
all energies." The argument is continued indefinitely after 
that fashion, and it is telling. It does not prove the point, 
however, unless we grant three things : first, that the present 
waste and idleness cannot be suppressed or greatly diminished 
without a departure from the fundamental principles of our 
present industrial order; second, that in the advantages of 
competition there are not social gains which more than com- 
pensate the social losses just described; third, that socialism 
is practicable. Justice is a strong plea in the programme of 
socialism, and it cannot be claimed for one moment that each 
one's income is at present in proportion to his services to 
humanity. Income in proportion to industrial merit is at- 
tractive to an ethical sentiment. But cannot we approximate 
more nearly to that than at present by- social reform ? By 
social reform is meant the improvement of existing institu- 
tions, but not their abandonment. No doubt the idle man is 
morally a thief. He receives, but gives in return no personal 
effort. Any man who has not earned the right of repose by 
his own past services, with mental or physical toil, is a shame- 
less cumberer of the earth, unless, indeed, he is physically or 
mentally incapacitated for useful employment. Would the 
world suffer if you should die? That is the test. If you 
merely clip coupons, then no one would miss you. Others 
would willingly relieve you. 

Dr. James Fraser, late Bishop of Manchester, England, rec- 
ognized the obligations of personal service, but he did not in 
consequence favor socialism. His idea of the case was ex- 
pressed in words the essential thought of which is as follows : 
"Most of us are by our necessities obliged to render services 
to our fellows. Some of us, however, have inherited or re- 
ceived money in some way without a return on our part. We 
are placed by God on our honor. It is now a matter not of 
physical compulsion but of honor with us to serve our fel- 
lows." What is here said would apply, of course, not merely to 
those who receive wealth by inheritance, but to those who be- 
come wealthy by the discovery of valuable treasures, such as 



Socialism 253 

oil, natural gas, or gold or other minerals on or under soil 
which they own, or by the mere growth of cities, which adds 
immensely to the value of land. Were I to receive an accession 
of wealth in such a way, then legally the wealth would be mine, 
but morally it would be simply a new opportunity for me to 
help forward the progress of humanity ; for ethically I myself 
am not my own. 

Social Reform. — We may likewise inquire whether without 
a departure from the institution of private property the laws 
of bequest and inheritance may not be so changed as to bring 
about a fairer distribution of products ; whether, also, by pub- 
lic ownership and management of important monopolistic 
businesses much of the waste of present private competition 
may not be avoided. These and a multitude of other questions 
suggest themselves. The author holds that social reform is 
likely to accomplish more valuable results than socialism can 
be expected to secure. What, in his opinion, is needed is a free 
and peaceful evolution of industrial society — not a radical 
departure from fundamental institutions. 

The Weakness of Socialism. — It does not appear clear to 
the author how socialism could be made to work in actual life. 
The danger to freedom seems a very real one. The author 
frankly admits that up to a certain point there is a tendency 
on the part of government to improve as its functions in- 
crease. But would this hold with the indefinite extension of 
the sphere of government? Let us grant that as our very 
livelihood would depend on the efficiency of government all 
the force and energy which now go into private service would 
be turned into public channels. But what would happen if, 
in spite of all precautions, some unscrupulous combination 
should secure the control of government? Would there be 
standing ground for effective opposition outside of govern- 
ment? It is to be feared that such would not be the case. 
Dissatisfaction in abundance would surely exist, for human 
nature is such that man cannot be thoroughly satisfied with 
his surroundings. The danger is that without proper means 
for its expression this dissatisfaction would grow and spread 



254 An Introduction to Political Economy 

beneath the surface of society until at last it would break out' 
into revolution. Kevolutionary changes, rather than peace- 
ful progress, are what the writer would fear as a result of the 
concentration ofecbnomic processes in public agencies. 

The domination of a single industrial principle is also dan- 
gerous to civilization. It has been held that the domination 
of a single social principle has led to the downfall of older 
civilizations, and a distinguished American — the Hon. An- 
drew D. White, our Ambassador to Germany, in an excellent 
address, entitled "The Message of the Nineteenth Century to 
the Twentieth" — has expressed the fear that the private 
business principle, with what naturally attends it, called 
by this scholar "mercantilism," threatens American civili- 
zation. Now, what is wanted is a coordination of the two 
principles — the principle of public business and that of 
private business. It is desirable that some should serve 
the public in an official capacity — some are specially adapted 
to that work — but it is equally desirable that an ample 
field should be left for those who prefer private initiative and 
activity. It seems to the author that thus only will our 
civilization be rendered rich and full. 

Socialists. — Socialism has rendered good service by calling 
attention to social problems; by forcing us to reflect on the 
condition of the less fortunate classes ; by quickening our con- 
sciences; by helping us to form the habit, acquired as yet by 
few, of looking at all questions from the standpoint of the pub- 
lic welfare and not merely of individual gain ; and, finally, by 
calling our attention to the nature of the industrial functions 
of government, and thus leading us and helping us to separate 
rationally the private industrial sphere from the public in- 
dustrial sphere. Socialism as a theory of society cannot, of 
course, be regarded as in any sense morally blameworthy. It 
has been advocated by good men and by bad men. To-day it 
numbers among its adherents earnest Christians and sincere 
ministers of the Gospel. Just as there are good republicans 
and bad republicans, good democrats and bad democrats, so 
there are good socialists and bad socialists. If every time a 



Socialism 255 

republican committed a criminal act all the newspapers 
were to say, "That is what comes of being a republican," we 
might begin to think all republicans bad men. It is a mistake 
to suppose that socialists belong to the criminal class. Those 
who have worked among the criminal classes and carefully 
studied them tell us that almost no socialists are found 
among them. At the same time it must be acknowledged that 
the socialists have been most unfortunate in a large propor- 
tion of their public representatives, especially of their noisiest 
representatives, who have secured the largest amount of atten- 
tion from the press. Some of them have been vicious men, 
and many of them have been bitter and vindictive. Needless 
animosity has been aroused by them and class hatred nour- 
ished. The cause of progress has thus been seriously injured. 
Furthermore, a number of questions having no real connection 
with socialism have been, even by many socialists, associated 
with it. Socialism has done harm by the manner in which it 
has been too frequently presented; it has also accomplished 
good, but the best effects of socialism have been its indirect 
and not its direct consequences. 

Anarchism. — It remains only to make a few distinctions 
between socialism and other things which are commonly con- 
fused with it in the popular mind. Socialism has been 
described as industrial democracy established and controlled 
by government. There are, however, those who hold that if 
all government were abolished, men would freely and spon- 
taneously form cooperative groups which, federated, would 
manage all production. These men attack government and 
deny the moral right of man through government to exercise 
authority over his fellows. These are the anarchists. The writer 
frankly confesses his inability even to imagine how this kind 
of socialism could be made to work in actual life. Scientific 
anarchy is something he cannot picture to himself as anything 
more substantial than a dream. When socialism is defined so 
broadly as to include anarchy we have two kinds of socialism 
— namely, anarchism and collectivism, collectivism meaning 
what has been called socialism in this chapter. The term 



256 An Introduction to Political Economy 

collectivism is often used interchangeably with socialism and 
by many adherents of the policy is preferred. 

Communism is a term which at present is not often used. 
It has been employed in the past to designate an extreme kind 
of socialism. When the system advocated includes equality of 
distribution per capita of population it is called by some 
communism, in distinction from a system which provides for 
unequal distribution and which they call socialism. Some 
writers have called violent schemes of radical social reform 
communistic, reserving the term socialistic for the more 
conservative plans of reconstruction. All the existing com- 
munistic societies in the United States, however, are composed 
of peace men, who do not believe in war, but instead preach 
nonresistance. It is, perhaps, as well to abandon the attempt 
to make a distinction between communism and socialism, and 
to drop the word communism. 



Literature. — Bellamy, Looking Backward; Ely, Socialism 
and Social Reform; also articles in Chautauquan, September, 
October, November, 1899 ; Kirkup, Inquiry into Socialism, an 
excellent presentation of a very conservative kind of socialism. 
Kirkup, however, includes voluntary cooperation under social- 
ism, and the socialism which he describes is not, strictly speak- 
ing, pure socialism; Mill, Principles of Political Economy, 
Book V; Mrs. Humphry Ward, Marcella. 



Monopolies 257 



CHAPTER IX 

MONOPOLIES 

Definition and Classification. — So many and so confused 
are the ideas regarding what constitutes a monopoly that the 
reader will find it an advantage to have a clear definition 
which he may use as a touchstone in studying the various 
phenomena that in the popular speech are commonly asso- 
ciated with the word. The author believes that the following 
definition will satisfy the tests of clear thinking in all investi- 
gation of such phenomena : Monopoly means that substantial 
unity of action on the part of one or more persons engaged in 
some hind of business which gives exclusive control more par- 
ticularly, although not solely, with respect to price. It will 
be found on examination that some monopolies are social in 
their origin, while others are natural as opposed to social. 
Of the social monopolies some are consciously instituted 
by government, with the desire to further the general welfare. 
Such monopolies we therefore call general welfare monopolies. 
Among these are patents, copyrights, trademarks, public con- 
sumption monopolies, and fiscal monopolies. The last two are 
designed, the one with the object of controlling consumption, 
the other to raise revenue for the state. The last is not found 
in the United States. Another class of social monopolies con- 
sists of those which have their origin in special privileges 
granted either by government directly, as in the case of pro- 
tective tariffs on goods locally monopolized, or by some power- 
ful interest existing outside of government, but existing by 
the tolerance of government. This last case is illustrated 
when one branch of production is monopolized by an indi- 
vidual or a group who are able to obviate all competition by 
the favor of railways in discriminating rates. There are three 
distinct classes of natural monopolies : those arising from such 



258 An Introduction to Political Economy 

a limitation of supply of raw material as enables a small group 
of persons to control the entire output; those arising from 
secrecy regarding methods or processes; and, finally, those 
arising from properties inherent in the business. These last 
ones, because they play an important part in the everyday 
life of men, will be considered more at length later. It need 
hardly be said that other classifications of monopolies are pos- 
sible. But this classification, explaining as it does the origin, 
and pointing in many cases to the remedies for existing evils, 
is, perhaps, the best one for the general student to keep in 
mind. It will be helpful to summarize the classification as 
follows : 

A. Social monopolies. 

I. General welfare monopolies. 

1. .Patents. 

2. Copyrights. 

3. Trademarks. 

4. Public consumption monopolies. 

5. Fiscal monopolies. 

II. Special privilege monopolies. 

1. Those based on public favoritism. 

2. Those based on private favoritism. 

B. Natural monopolies. 

I. Those arising from limitation in the supply of raw 

material. 

II. Those arising from peculiar properties inherent in 

the business. 

III. Those arising from secrecy. 

Social Monopolies. — Only a word can be said about social 
monopolies. Businesses are social monopolies when they are 
made monopolies not by their own inherent properties, but by 
legislative enactment or by the formation of a close connection 
with powerful natural monopolies, whereby they are made 
to partake of the qualities of the latter. Such monopolies are 
social in the sense that they have their origin in the social will 
or consent, and continue to exist by virtue of positive social 
action — as in the case of legislation — or by social tolerance. 



Monopolies 259 

Kings and queens formerly granted exclusive business priv- 
ileges to favored persons, and permitted no one except those 
named to engage in certain undertakings. These early mo- 
nopolies became so odious that sovereigns were compelled to 
abandon their claims of right to grant exclusive economic 
privileges. 

Government creates exclusive privileges by copyright and 
patent laws, but this is done professedly in the interest of the 
general public and not of any favored class. Authors and in- 
ventors are granted exclusive rights in their productions for 
a limited period. This monopoly is considered a fit reward 
for valuable public services. Copyrights and patents have 
been objected to as interferences with natural liberty, but they 
have perhaps justified themselves in the stimulus which they 
have given to authorship and invention. It must, however, be 
remembered that all intellectual effort is an historical product. 
The telephone, for example, did not spring from the mind of 
one man, as Minerva sprang from the head of Jupiter. The 
telephone was preceded by a century of scientific invention 
and discovery, most of it poorly enough remunerated. The 
telegraph was, similarly, the result of generations of careful, 
plodding industry of scores of men. Professor Henry, of 
Princeton College, whose services in connection with the com- 
pletion of the telegraph were most distinguished, conscien- 
tiously refused to take out any patent. Professor Babcock, 
of the University of Wisconsin, has likewise refused to take 
out a patent upon his invention of an extremely valuable milk 
tester, which is known by his name. It also frequently hap- 
ens that several persons almost simultaneously and inde- 
pendently make the same discoveries and inventions. Now, 
if only the man who makes the finishing touches, which lead 
to utilization of a long line of work, is rewarded, it is like pay- 
ing only the workmen who put the roof on the house. It is 
not generally understood how serious an interference with 
liberty patents are. A man who has a patent is allowed to say 
to all the rest of the world, "Because I have first done such 
and such things, you must not do them." Yet there may be 



260 An Introduction to Political Economy 

those who at about the same time, without any knowledge of 
this work, had found out how to do these same things. When 
a principle existing in nature, and not merely the application 
of the principle, is allowed to be patented, the interference 
with liberty becomes still greater. The practical conclusion 
of the whole matter may perhaps be best expressed as follows : 
Patents, like copyrights, are beneficial. Experience seems to 
warrant this assertion. Patents do not, however, rest on so 
strong a basis as do copyrights, because no two persons could 
ever write precisely the same book, and the fact that I have 
Written a book in nowise keeps you from writing any book you 
please. Patents should not be granted on light and. trivial 
grounds. The period for which they are granted ought to be 
strictly limited, and subterfuges for the evasion of this limi- 
tation ought not to be suffered to succeed as at present. In 
considering the question of patents, moreover,. we should not 
forget the great difficulty which inventors often have in secur- 
ing the fruit of their discovery. Often a poor inventor after 
paying the money for his patent finds that some great company 
proceeds to use his idea, in a slightly modified form, without 
offering a royalty. The courts are open to him, but in seeking 
such redress he frequently has to fight huge aggregations of 
capital. In securing legal assistance he can offer in payment 
only a fee which is contingent upon the issue of his case. But 
as manufacturing concerns in such instances do not copy the 
idea in every detail, but modify it in some particular, the issue 
of an appeal to the courts is at best a doubtful one. Conse- 
quently able lawyers either refuse such cases or are com- 
pelled to charge a large fee. The fee and other necessary costs 
form a big deduction from the reward of the invention even 
when the courts decide in favor of the protesting inventor. 
Moreover, owners of patents ought to receive their patents on 
conditions which will compel them to use them or allow them 
to lapse, and, perhaps, also, to grant to others the right to use 
the patents on payment of a reasonable royalty. Laws ought 
also to be changed so as to prevent such an abuse of patents 
as we have frequently witnessed in our rural districts, where 



Monopolies 261 

farmers have been induced to infringe patents unwittingly 
in order that damages might be collected from them. The 
suggestion, made by an ex- Commissioner of Patents in the 
United States, that the right of purchase of a patent be re- 
served by the federal government, is to be commended. 
Our patents at the present time promote monopoly, and in 
some cases interfere senselessly, it is to be feared, with manu- 
factures. The patent laws require to be simplified and 
amended and their abuses removed. At the same time reward 
should in some way always be provided for those who make 
valuable inventions. 

The trademark is a legal device somewhat similar to the 
patent, with which, indeed, it is frequently associated. In the 
case of the trademark the producer simply secures from the 
government the right to vend his goods in such a way that 
they shall always be known as his. Trademarks, in connection 
with the lavish advertising of recent times, have been an aid 
to enormous profits. By wide advertising certain pictures or 
designs or words come to have a world-wide reputation, and 
purchasers, choosing the known in preference to the unknown, 
are determined in their buying by the familiar trademark. 

Some hold that our American tariff laws create monopolies, 
and, while their influence in this direction is undoubtedly 
vastly exaggerated, it seems scarcely possible to deny that they 
have assisted the producers of a few articles to form domestic 
combinations for the suppression of competition. The rem- 
edy suggests itself. 

Natural Monopolies. — Natural monopolies have been the 
subject of frequent reference in other chapters of this book. 
It now remains to sum up and complete what has been said and 
to consider them with particular reference to distribution. 
Natural monopolies are those which rest back on natural ar- 
rangements as distinguished from social arrangements. The 
term natural is here used in its well-understood and customary 
sense as indicating something external to man's mind. A 
natural monopoly is one which, so far from giving expression 

to the will of societv, grows up apart from man's will and de- 
18 



262 An Introduction to Political Economy 

sire, as expressed socially, and frequently even in direct op- 
position to his will and desire as thus expressed. The prin- 
cipal natural monopolies have been enumerated. They are 
wagon roads and streets, canals, docks, bridges and ferries, 
water ways, harbors, lighthouses, railways, telegraphs, tel- 
ephones, the post office, electric lighting, water works, gas 
works, street cars of all kinds. As a result of years of work 
in this field of study the author has formulated a statement 
which summarizes and combines the true features of such 
natural monopolies. The formulation is as follows: "When- 
ever there is a decided and continuous increment in gain re- 
sulting from combination, we have a tendency to monopoly 
which will overcome all obstacles. It is this increment in gain 
which is the cause of monopoly. Now, that cause operates when 
we have to do with businesses which occupy peculiarly favor- 
able spots or lines of land furnishing services or commodities 
which must be used in connection with the plant.'* 

Combination and Competition. — It was long ago said by 
a shrewd English engineer that where combination is possible 
competition is impossible. Combination is always possible in 
the case of undertakings which are natural monopolies.* It 
is inevitable, for it is not only cheaper to do a given amount 
of business by a monopoly than by two or more concerns, but 
even very much cheaper. If two gas companies in a city, 
having each a capital of a million dollars, are able, operating 
separately, to make ten per cent profits, when combined they 
will make much more than ten per cent, possibly even fifteen 
or twenty per cent. There is a force continually at work draw- 
ing them together. It works as constantly if not as uniform- 
ly as the attraction of gravitation, and in the discussion of 
natural monopolies we can safely predict consolidation. 

We are not left to general principles. The testimony of ex- 
perience is ample. There is never any real competition in the 
field of natural monopolies. There is war to settle the terms of 
combination, and popular language when it uses the word 

* The author here is speaking chiefly about the second sub-class under nat- 
ural monopolies, namely, B. II. 



Monopolies 263 

"war" in this connection, as in speaking of "gas wars," "rail- 
way wars," etc., is scientifically correct. Competition is a 
steady, permanent pressure, while war is destructive, and seeks 
to damage an enemy in order to make peace advantageously. 
The effort to compel gas companies in cities to compete has 
been made more than a thousand times, but never in the world's 
history has it succeeded, and it never can succeed. The same 
may be said with reference to telegraph companies. We have 
had, probably, over one hundred different companies in the 
United States. England has tried competition over and over 
again. At present real competition in the telegraph business 
exists in no country in the world. It will never exist. In all 
European countries railways have combined, and the apparent 
competition in our own country is illusory and temporary. 
Combination is going forward with unprecedented rapidity. 

What shall be our policy ? Monopoly is inevitable. Private 
monopoly is odious. The test of experience approves public 
monopoly. Fear and trembling have usually attended experi- 
ments in public monopoly, but, as a rule, the results have in 
the long run been gratifying. Public ownership and public 
management of railways have in Germany succeeded in many 
respects even better than their advocates anticipated, and the 
opinion of experts in Germany favors them without an excep- 
tion, so far as the author has been able to learn. 

But shall we, in the United States, try to substitute at once 
public ownership and management of natural monopolies for 
private ownership and management? The private interests 
opposed to this step, the apathy, indifference, and prejudice 
to be overcome, are so tremendous that there is little danger 
of moving too rapidly in this matter. What the writer would 
advocate is limitation of charters for natural monopolies and 
an increased reservation of the rights of the public, in order 
that such changes as shall finally be decided to be beneficial 
may be easily and readily made. The right of purchase of a 
natural monopoly without paying anything for the franchise 
itself, but only for the value of the capital actually invested, 
or the actual value, ought always to be reserved. 



264 An Introduction to Political Economy 

The Advantages Claimed. — The principal advantages 
which, it is hoped, will attend public ownership and manage- 
ment of such monopolies are as follows : 

1. Increase of Public Prosperity. — First, a diffusion of the 
income from the monopolies among the community will take 
place, and this will tend to prevent an undue concentration of 
wealth, while promoting general prosperity. Wide diffu- 
sion of wealth and general prosperity formed the ideal of the 
fathers of the American republic. How profitable natural 
monopolies are may.be seen from the fact that they are the 
source of most of the enormous fortunes of our country. When 
they are taken under public ownership and management the 
income from them may be diffused in either of two distinct 
ways: charges may be placed so low that price will simply 
cover' cost — the method pursued by our post office and by the 
English telegraph ; or a profit may be derived from these pur- 
suits, and this used to lower taxes or to do things of benefit to 
the people as a whole. 

2. Economy. — The second great advantage is the greater 
economy of public ownership and management. We may thus 
avoid the larger part of that waste of which socialists com- 
plain, while at the same time we maintain the fundamental 
principles of the existing order. It is, in fact, the bad manage- 
ment of natural monopolies which has given to socialism a 
considerable part of its strength. 

How enormous is the waste of war and attempted compe- 
tition in the field of natural monopolies may be seen on every 
side. The construction of two needless parallel lines of railway 
in the United States — the West Shore and the Nickel Plate, 
together extending from New York to Chicago — wasted, it 
has been said, two hundred millions of dollars,* a sum suffi- 

* It is not possible in this place to enter into details. It is easily possible 
to overestimate this waste, but it is also as easily possible to underestimate 
it. A careful study of all the essential facts is required to enable one to 
form a sound judgment. Certainly the most conservative student must rec- 
ognize that the waste is of sufficient magnitude to make it a matter of 
national concern, and that is the principal thing which the text endeavors 
to make clear. 



Monopolies 265 

cient to build two hundred thousand homes, or, at the rate of 
five persons to a family, enough houseroom for a million 
people. Perhaps the waste in railway construction and opera- 
tion in the United States during the past fifty years would 
be sufficient to build comfortable homes for every man, 
woman, and child now in the country. 

In every city are manifold evidences that attempted compe- 
tition eats up a large part of what might be profit. Gas can 
well be supplied at a profit in most great cities, if the business 
is a perfect monopoly, for seventy-five cents or less per thou- 
sand. English cities supply it for less. The city of Wheeling 
supplies gas for seventy-five cents a thousand and "makes 
money." The Baltimore Gas Company's charge of one dollar 
and ten cents a thousand— the price just fixed by the legisla- 
ture — apparently will not earn a great deal of money for the 
stockholders. What is the reason? Simply this: that the 
present company is a combination of half a dozen or more 
companies which have built works, dug up the streets, put gas 
mains in them, and run pipes into houses. An enormous sum 
of money — millions of dollars — has been wasted, and this 
waste is represented by bonds, as well as by an enormously in- 
flated capitalization. The capital has simply been wasted. 
No one has received the benefit, but the people of Baltimore 
have suffered the loss, inconvenience, and damage of uselessly 
torn-up streets. The experience of Baltimore is that of nearly 
all large American cities. 

Municipal ownership, with municipal management, of 
natural monopolies is everywhere in Europe being substituted 
for private ownership, and there the question may be regarded 
as practically settled by the test of experience. Public opinion 
increasingly favors public enterprise in the United States, and 
many cities are taking steps which will sooner of later result 
in an increased number of municipal undertakings in our 
country. 

When services of a monopolistic nature are performed by 
the public, water, gas, and electric-lighting services can all 
be combined, and great economies secured. A better manage- 



266 An Introduction to Political Economy 

ment is the result. It is only a popular superstition that pri- 
vate enterprise is uniformly superior to public enterprise. 
Each should be superior in its own field. This superiority of 
public enterprise is not exceptional. During the last fifteen 
years the writer has had considerable experience in the use of 
the post office and the express companies, and has yet to find 
one instance in which when a mail and express package were 
sent at the same time from the same place to the same des- 
tination the express package reached its destination as soon as 
the mail. Anyone may try the experiment for himself. The 
author has also found the post office incomparably more 
obliging and desirous of doing all that he asked. It seems to 
make little difference how mail is addressed. If any sort of 
clew is given, it reaches its address. And it is instructive to 
note the fact that express companies, when they do not at once 
find the person to whom the package is addressed, turn over 
to the post office system the task of finding the addressee. 
They simply mail a postal card addressed in the same manner 
as the package. The American telegraph service is inferior to 
the foreign service, and is also inferior to our post office in 
the matter of accommodating the ordinary citizen. In other 
countries telegrams can be sent for as low a rate as nine cents 
for ten words, and in England there is one uniform charge 
of twelve cents for twelve words. In the United States the 
rate is sometimes as high as one dollar for ten words. True, 
America is a country of magnificent distances, but in the 
actual service of telegraphing distance is relatively a small 
matter. In the postal service, on the other hand, things are 
actually carried from place to place, and distance is, therefore, 
an appreciable element in expense, and yet, notwithstanding 
our long distances, no country carries letters for lower charges 
than does the United States. 

Nor is it true that private enterprise always excels publio 
enterprise in initiating improvements. English municipalities 
have gone ahead of private gas companies in improvements. 
The English government has introduced improvements in the 
telegraph service which our American telegraph companies 



Monopolies 267 

have strenuously resisted. The burial of wires in cities is only 
one of these improvements. The American post office went 
ahead of American express companies in developing the money 
order business. Private savings banks have followed the lead 
of the English postal savings bank in the establishment of 
branches and in the use of stamps pasted on cards for small 
savings. Government has gone ahead of private corporations 
in the matter of publicity of financial accounts, and has 
shown many of the pecuniary advantages of such publicity. 

3. Purification of Politics. — The third great advantage of 
the public ownership and management of natural monopolies 
is the purification of politics. Private monopolies must be 
controlled by public authority. But control means interfer- 
ence with private business, and interference begets corrup- 
tion. Frequently, when electric lighting is supplied by a pri- 
vate corporation, the stock is distributed "where it will do the 
most good," among influential citizens, newspaper proprietors, 
and politicians, and we have a powerful factor arrayed against 
good government. This is one reason why American citizens 
have to pay such large sums for the services rendered by cor- 
porations, and it is likewise one of the reasons why the govern- 
ment of American cities is so expensive. When, however, we 
have public ownership and management of natural monopo- 
lies, public interests and private interests are identified to that 
extent, and the best citizens are won to the side of good govern- 
ment. Those who care to do so can observe evidences of this 
on every hand. Mayors in those cities where electric lighting 
is done by the municipality will generally testify to the good 
political effects. We have here the suggestion of one way to 
reform our civil service. In many cases it is idle to say, "Wait 
until our civil service is better, and then we will introduce the 
principle of public ownership and management of natural 
monopolies." Often the industrial reform must precede. Fre- 
quently that only can open the door to a thoroughgoing re- 
form of our administration. 

Following the reforms advocated, talent will be offered a 
career in the service of the state, private business will then 



268 An Introduction to Political Economy- 

absorb only its legitimate share of the brains of the country, 
and the danger of mercantilism will thus to some extent be 
counteracted. 

4. Will Overthrow Injurious Social Monopolies. — The 
fourth advantage is that the discrimination between public 
and private business here advocated will prevent the existence 
of many social monopolies which are oppressive. Certain busi- 
ness men have been able to build up injurious social monopo- 
lies through their having been favored by those in control of 
natural monopolies, as, for example, by receiving lower freight 
rates than their competitors have been able to secure. The 
just and equal treatment of all citizens by all natural monopo- 
lies would help to give all a fair chance, and would confine the 
concentration of business to its legitimate limits. 

Conclusion. — While the drift is strongly in favor of public 
ownership and operation of monopolistic undertakings of the 
kind mentioned, we must not shut our eyes to the immense 
difficulties which we have to encounter when we choose this 
horn of our dilemma. We have the problems of governmental 
organization, of improvement in the civil service, of more effi- 
cient methods in public business, and many others not less 
difficult or complex. ^Particularly in the case of governmen- 
tal railways for long-distance transportation do we have the 
problem of rates and sectional demands, with mutual suspi- 
cions and jealousies. } This is the most serious obstacle of all 
those standing in the way of nationalization of railways in the 
United States, and to many scholars it seems insuperable. 
Even the question of civil service is a much easier one. But 
even with private railways are we not likely to have to solve 
by public action the question of rate-making? Already it 
frequently comes before legislatures and courts. 

Finally, even with the present drift in favor of governmen- 
tal ownership, we must long have private property in many of 
the kinds of businesses under consideration, and so we still 
have with us the question of the regulation of franchise grants 
and public control of corporations furnishing monopolistic 
services. Our problems are perplexing enough, and all those 



Monopolies 269 

who in any way are seriously trying to solve them deserve our 
gratitude, while we must praise those persons who, practically 
engaged in these businesses, try to do what is right, and to 
serve the public honestly. 



Literature. — Baker, Monopolies and the People; Bemis, 
Municipal Monopolies; Ely, Monopolies and Trusts; Hob- 
son, The Evolution of Modern Capitalism; Jenks, The Trust 
Problem; Keport of the Chicago Conference on Trusts; Re- 
port of the Industrial Commission (U. S.), vols, i and ii; 
Shaw, Municipal Government in Great Britain and Municipal 
Government in Continental Europe. 



270 An Introduction to Political Economy 



CHAPTER X 

ADDITIONAL REMARKS ON SOCIAL PROBLEMS AND REMEDIES FOR 
SOCIAL EVILS 

There are many social problems, and they are by no means 
entirely economic in their nature. They all, however, have 
their economic side, and the province of the economist is to 
look at them from the economic standpoint. When we dis- 
cuss distribution we treat social problems not merely from 
the economic standpoint, but even more narrowly, from the 
point of view of distribution, recognizing, however, that they 
pertain as well to production. 

The most prominent of the present social problems which 
are chiefly economic have already been mentioned and dis- 
cussed with more or less fullness. It now only remains to 
say a few additional words about these and to call attention 
to one or two other social problems not yet mentioned directly ; 
and, finally, to make some remarks on remedies for social 
troubles. 

Child Labor is one of the most serious evils of our day, and, 
where uncontrolled by legislation, it is increasing with alarm- 
ing rapidity in the United States, growing more rapidly than 
population. It is one of those things which never regulate 
themselves, but which, unregulated, as all experience shows, 
go from bad to worse. Only laws, with severe penalties for 
disobedience and special factory inspectors for their enforce- 
ment, can lessen this evil. With these laws must be coupled 
compulsory education, with adequate provision for its en- 
forcement by means of truant officers and the provision of 
truant schools. It is thus that Massachusetts, the banner 
state of the Union in this as in all legislation touching the 
wage-earning class, has greatly lessened the evil of child labor. 
No one under fourteen should be allowed to work in factories. 



Social Problems and Social Evils 271 

For children of from fourteen to seventeen afternoon and 
evening continuation schools should be furnished, with com- 
pulsory attendance for a minimum number of hours. For 
moral and physiological reasons the hours of labor for those 
between fourteen and eighteen years of age should be limited 
to a maximum of ten on every day except Saturday, when 
young persons should not be allowed to work after one o'clock 
in the afternoon. This regulation ought likewise to apply 
to married women, in order to guard the interests of the 
home. The labor of women in factories is increasing far 
more rapidly than the growth of population or the labor of 
men. Women ought to be surrounded with every safeguard 
for health; every provision for decency and comfort ought to 
be provided ; machinery should be fenced in ; employers 
should be rendered liable for accidents; hours of labor ought 
to be strictly limited on physiological principles, especially 
until maturity; in the interest not merely of mothers, but of 
the rising generation, work for a period prescribed by physi- 
ology and hygiene ought to be entirely prohibited before and 
after confinement ; finally, in the case of women, work under 
ground and in other places dangerous to morality ought to be 
abolished. 

Involuntary Idleness is a serious social trouble. It appears 
that, by and large, wage-earners are idle, on an average, 
about a tenth of the working days in the year, and some of 
them for several months each year. Only a small part of this 
idleness — in Massachusetts only about one per cent — is due 
to strikes and lockouts. Forced leisure does harm. It leads 
to the formation of vicious habits, including drunkenness and 
vagabondage. As much work would be accomplished as is 
now performed if wage-earners labored nine hours a day regu- 
larly, even if no increased efficiency were the result; and as 
increased efficiency is the result of shorter hours, it is alto- 
gether probable that eight hours a day of regular work would 
be as productive as are ten or eleven hours now, with our 
periods of idleness. It may be a difficult problem to effect the 
desired end, but certainly it would be a blessing to our entire 



272 An Introduction to Political Economy 

social life if work could be distributed regularly throughout 
the days of the year, with a few holidays and a short vaca- 
tion, but with no enforced idleness. 

Intemperance is at once a cause and an effect of industrial 
conditions, but not merely of industrial conditions, nor even 
of social conditions. It is undoubtedly, in part, an individual 
matter, and appeals to individuals are, therefore, in place; 
but the influence of social conditions cannot safely be left out 
of consideration. 

Pauperism springs from social causes already mentioned 
as well as from individual causes, and the remedy must come 
both through improved industrial and social relations and 
through individual reformation. We now hear of a science of 
charity; and it is sorely needed, for the old-fashioned alms- 
giving is a curse. 

Divorce. — The family is to be kept in view as the true 
social unit in all economic discussions, and divorce is one of 
the most serious evils connected with the family institution. 
The causes for divorce, and in general for the disintegration 
of the family, have been shown by investigations conducted 
by the National Department of Labor at Washington to be 
largely economic. It is the pressure of economic wants in the 
lower middle class which is most fruitful of divorce. 

Corporations and Trusts have already been treated. In gen- 
eral, the writer opposes minute interference with combina- 
tions of labor and of capital. In the past such interference 
has been productive of harm. Whenever any pursuit is such 
that in that business combinations of labor and capital are 
dangerous, the general conclusion is that it is not fit for pri- 
vate enterprise at all, but is suitable only for public manage- 
ment. This is, however, a rule which has exceptions more or 
less numerous, depending upon conditions of time and place. 

Remedies in General. — The most general remark in regard 
to remedies for social troubles is that there should be no need- 
less interference of public authority with private business. 
This is a true source of corruption. 

Interference in behalf of labor is inevitable, but it should 



Social Problems and Social Evils 273 

be confined chiefly to the protection of women and children 
and to those who are naturally unable to help themselves. 
The general aim should be to educate both the bodies and the 
minds of the rising generation so thoroughly as to reduce the 
need of interference to a minimum. 

Prevention is always better than cure. The constant aim 
of public authority and private effort should be to anticipate 
troubles and to prevent their existence. It is a monstrous doc- 
trine that the state can employ its functions and use public 
money freely to repress crimes, but may not spend a cent to 
prevent their existence. Some would have us think that the 
city of Chicago, for example, was warranted in spending hun- 
dreds of thousands of dollars, or even millions if necessary, 
to hunt down and hang anarchists, but not any money at all 
to provide playgrounds for children, breathing places for 
adults, to improve the sanitary arrangements of the city, to 
provide wholesome recreation, and in general to remove, so 
far as in its power, all legitimate cause for discontent. It is 
not necessary to show the fallacy of this. Laws ought not 
to be merely mandatory and repressive. Legislation should 
hold out, so far as practicable, inducements for right conduct. 
It ought to strive, to an ever-increasing extent, to "attract" to 
right action, or to become, as it is technically called, attract- 
ive and positive. 

Popular Suffrage. — Preparation for the duties and privi- 
leges of life is a public and a private function, but the 
abolition of duties and privileges of citizenship is exactly the 
wrong thing. Those among us who look at social problems 
from the standpoint of the few will desire, for example, to 
abolish universal suffrage and to restrict the franchise, while 
those who have at heart the welfare of the masses will be more 
inclined to say: Rather prepare every person in America for 
the duties of citizenship. See to it that every American child 
is compelled to attend school at least six full years, and is 
taught some useful occupation. Diffuse in every way a 
knowledge of the duties and privileges of an American citizen, 
and until that has been faithfully tried let us not think of a 



274 An Introduction to Political Economy 

restricted suffrage. Do not take the suffrage from illiterates, 
but abolish illiteracy. Experience has shown that this is 
feasible. 

There are, moreover, remedies for the evils connected with 
general suffrage which are in harmony with the principles of 
democracy and which are receiving strong advocacy in our 
own and other countries. The legislative "initiative," the 
"referendum," and "proportional representation" are three 
remedies which have been tried in Switzerland with success. 
In our own country the referendum is, of course, in use in the 
establishment of constitutions ; frequently, also, in matters of 
public indebtedness ; and is sometimes employed also in other 
cases. The reform of the civil service is another remedy en- 
tirely in harmony with the principles of democracy. While 
these remedies are political, they all have their important eco- 
nomic bearings, as we have seen. 

There is no one remedy for social evils. A multitude of 
agencies for good must work together. Private individuals 
and private associations of individuals must supply these. Re- 
ligion must furnish men with a motive power impelling them 
to see and do the right. Public authority must likewise do 
what it can for humanity. Men come forward from time to 
time with some one remedy, a panacea for all social evils, but 
such men are naturally distrusted. 

This part of our treatise cannot be better closed than by 
the following suggestive words from the last chapter of Pro- 
fessor de Laveleye's Primitive Property: "There must be for 
human affairs an order which is the best. That order is by no 
means always the existing one, else why should we all desire 
change in the latter ? But it is the order which ought to exist 
for the greatest happiness of the human race. God knows 
it and desires its adoption. It is for man to discover and es- 
tablish it." 

Literature. — Commons, Proportional Representation; Stim- 
son, Handbook of the Labor Law of the United States; Yin- 
cent, Government in Switzerland. 



PART V 
CONSUMPTION 



Consumption 277 



CONSUMPTION 

""When the economist comes to treat of consumption he does 
not approach an entirely new set of economic phenomena, but 
he rather changes his standpoint. The same familiar topics 
occur under consumption which have met us elsewhere in the 
present book, but the point of view is a different one. Con- 
sumption and production are correlative. Consumption is the 
end of production, and production finds limits in consumption. 
Production can merely anticipate consumption. Consump- 
tion is the motive power of production, and production goes 
forward satisfactorily only when there is before the producer a 
reasonable prospect of consumption. The toiler must see be- 
fore him as a goal the consumption or the control of the con- 
sumption of at least a considerable part of the fruits of his 
exertions. Arthur Young, in an often-quoted passage, said, 
"The magic of property turns sand into gold." True, the dis- 
tinguished traveler had in mind peasant proprietorship, and 
consumption undoubtedly does throw light on the nature and 
utility of private property. It is not, however, necessary that 
the cultivator or improver either of rural or of urban land 
should enjoy the right of property in it to induce him to exert 
himself. English tenant farmers are among the best in the 
world, and in American cities men diligently improve real es- 
tate which they do not own. But it is a prerequisite of a wide 
diffusion of economic energy that the fruits of the toil of one 
who conducts an enterprise should accrue to him, and that 
these fruits should increase in some kind of proportion to 
augmented diligence and efficiency on his part. Kack-rents, 
which take from either the rural or the urban tenant all save 
enough to sustain life; oppression of government — like that 
of Turkey, which systematically robs the producers ; and exac- 
tions of those railway and other corporations which are at the 
same time powerful and unscrupulous — all these and other 
19 



278 An Introduction to Political Economy 

similar agencies which discourage the producers are destruc- 
tive. They take away from men the goal of consumption. 

Difficulties in Treating the Subject of Consumption. — The 
subject of consumption must here be treated very briefly. 
Only a few main points can be touched upon. This part of 
political economy has not yet been sufficiently worked out for 
satisfactory treatment at length in an elementary work like 
the present. There are several reasons why this part of 
political economy is in a particularly backward condition. 
In the first place, one may connect it with a general tendency 
to forget the end of life in our zeal to discover the means of 
it. Many a writer discourses about production as if it were 
in itself the end, and as if consumption were a misfortune to 
be reduced to its lowest terms. In the second place, con- 
sumption is in many respects more difficult to treat than are 
other phases of economic thought. Its laws are less readily 
discoverable. Production often takes place in the light of 
day. It is frequently, and to an ever-increasing extent, con- 
centrated in large establishments which are visible to all. A 
considerable proportion of consumption, on the other hand, 
is as widely diffused as are the homes and dwellings of indi- 
viduals and families. It is generally more or less covered up, 
and in some cases even entirely secret. Consumption now re- 
sembles in many of its aspects the household production of 
economic goods in the old days which preceded the science of 
political economy. In the third place, political economy deals 
with social relations, and it must be confessed that the social 
element is more universally prominent in the production of 
goods than in their consumption. 

The Term Consumption Defined. — The term consumption 
is used in economic discussion in two quite different senses, 
only one of which is scientifically accurate. In a very wide use 
of the word it signifies all destruction of utilities which min- 
ister immediately or remotely to the satisfaction of human 
wants. Just as production means not the creation of matter, 
but the production of utilities, so consumption, in the wide 
and not strictly scientific sense, stands, not for destruction of 



Consumption 279 

matter, but for the destruction of utilities. Under this defini- 
tion it is common to include two kinds of consumption. The 
one kind may be illustrated by the use of coal in manufactur- 
ing. In such a case the utilities in the coal are destroyed, or, 
as we may say, the mere concrete utilities have ceased to exist, 
but they are replaced by even greater utilities in the final 
product of the factory. Such consumption is called productive 
consumption. The other kind may be illustrated by the eating 
of food. The whole process of production has had this in view, 
and when this end has been reached our consideration of the 
utility of the food ceases. We may therefore call this kind of 
consumption final consumption to distinguish it from produc- 
tive consumption. To use technical language, in final con- 
sumption the pure abstract utility ceases to exist because it 
attains its purpose in the satisfaction of human wants. 

But, as we have already said, the definition which would in- 
clude these very different processes under the one name of 
consumption is scarcely scientific, and, unless carefully 
guarded, is likely to engender confusion of thought. Cer- 
tainly, when the word "consumption" stands unqualified it 
should represent only real consumption, which we have called 
final consumption. 

Productive consumption is properly but one phase of pro- 
duction, and it has already been considered under that head. 
Yet there is a certain advantage to be derived from discussing 
here certain phases of the subject which have close affinities 
with the subject of final consumption. For we are, after all, 
constantly confronted in our everyday life with the problem 
of choosing between final consumption of goods in the present 
and final consumption of the same or a greater body of goods 
in the future, and upon our choice hang momentous conse- 
quences. 

We shall, therefore, include productive consumption in our 
treatment of the general subject, only cautioning the reader 
once more to bear in mind the distinction and the difference 
to which we have referred. 

Consumption and Capital Formation. — When consumption 



280 An Introduction to Political Economy 

leaves permanent results, it is saving. Saving is but one form 
of consumption. A farmer, let us say, raises one hundred 
bushels of potatoes, and with his family eats fifty, while he ex- 
changes the other fifty for the services of persons who produce 
luxuries for his table, and let us suppose that these luxuries 
are also eaten at once. When the fifty bushels have been eaten 
by the family and the other fifty bushels by persons who 
produce luxuries for the family, no permanent result is left. 
Now, let us suppose that instead of using the fifty bushels to 
feed laborers who are producing luxuries for him, he uses them 
in the same indirect way to construct a needed fence on the 
farm. The potatoes have all been equally consumed in both 
cases, but in the latter case we say that the farmer has saved 
fifty bushels of potatoes; by which we mean that he has em- 
ployed them in such a way that a relatively permanent result 
of their consumption remains. To be sure, the fifty bushels 
of potatoes have been eaten, but, as the farmer says, he "has 
something to show" for the consumption. Let us take an- 
other illustration : A and B have each an income in one year 
of one hundred thousand dollars beyond what they need to 
support themselves. A spends his hundred thousand dollars 
in giving a series of magnificent entertainments, and thought- 
less people say that he is a man to be praised because he gives 
employment to labor. B, on the other hand, spends his hun- 
dred thousand dollars in constructing a factory. His ac- 
quaintances may not know what he is doing with his income, 
and may call him a bad citizen, who gives no employment, but 
"locks up his money," by which expression they seem to mean 
that he keeps from consumption commodities over which 
he has control. Yet, in reality, B has consumed or directed 
the consumption of as large a quantity of economic goods as 
A, and has something left to show for it. After he has given 
employment during the year to the men who have constructed 
his factory, he continues to give a number of men employ- 
ment and opportunity for consumption indefinitely, while 
A's consumption has ceased once for all. 

It should be mentioned in this connection that govern- 



Consumption 281 

ments are more or less prominent in capital formation. When 
our federal government pays off the national debt it forms 
capital. The means to pay the debt are collected in small 
sums from millions of people who would not have used them 
for purposes of production, and then the aggregate is handed 
over to the holders of written obligations or bonds, who use it 
as capital. In the pockets of the people these means were 
not capital, and only a small proportion would have been 
turned into capital. There can be no doubt that debt-pay- 
ment by the United States has increased the actual capital of 
the country. A part of this new capital, it is true, simply 
restored capital that had once existed and had been sacrificed 
years before. Similarly, when the United States expends its 
revenues for post office and other federal buildings, and for 
wise internal improvements, it increases capital. It is a con- 
sumption which is at the same time a capital formation. 
When municipalities establish gas works, electric-lighting 
works, and pay for them by taxes or by loans repaid by tax- 
ation, the capital of the country is increased. The people 
save a portion of their income through the agency of govern- 
ment, and it is the only way in which a considerable propor- 
tion of them can be made to save anything. 

We have thus capital formation from the consumption of 
economic goods for the production of external material 
things, but we have, besides, what we may call personal capital 
formation from the consumption of things by persons who 
are acquiring economic skill and aptitudes. This last use of 
the term is, however, best considered as figurative. 

It must not be supposed that all saving is useful. Capital 
formed is frequently employed destructively. This is the 
case with capital which is used to make an attack on existing 
capital. Capital which is saved to build parallel lines of rail- 
way or rival gas works like those which have afflicted the 
people of Baltimore is almost entirely destructive. All these 
economic goods, so far as the general public is concerned, 
might far better have been consumed in pure enjoyment. 

Alleged Present Consumption of Future Products. — We 



282 An Introduction to Political Economy 

often hear of consumption in advance of production. It is 
said that people "live on the future." Thus it is frequently 
argued that during our civil war we were consuming faster 
than we were producing. In explanation it is alleged that 
the federal bonds represented the consumption of future earn- 
ings. Those who talk thus appear to have no clear notion 
of the actual case. It is impossible to consume faster than 
we produce unless we consume past savings. It needs but a 
statement to convince anyone that we cannot eat to-day the 
wheat or potatoes of to-morrow, nor can we wear coats before 
they are made. What is alleged of consumption beyond cur- 
rent production can only be true in case the capital of the 
country is diminishing, whereas during our civil war it 
really increased. What really happened was this: We as a 
nation became indebted to some extent to foreigners, and 
within the nation some of us gained while the rest of us were 
losing. Bonds do not represent a present consumption of 
future wealth, but a consumption of existing wealth for which 
a government agrees to remunerate its owners in the future. 

Prodigality and Avarice. — Luxury, which falls under the 
head of prodigality, is one of the motives of economic activity. 
It is now necessary to add a few further remarks to what has 
already been written in order to look at the subject from our 
new standpoint. 

"When a king makes great outlays he gives alms," was the 
moral justification which Louis XIV of France offered for 
royal extravagance, and even so really great a writer as 
Montesquieu said, "When the rich diminish their expenditures 
the poor die of hunger." It is to be hoped that the fallacy of 
these utterances is readily apparent to all who have carefully 
read what precedes. First, when we save, we also consume 
and we give employment"; and we give more employment — 
sometimes even a hundredfold more — when we make wise 
investments in productive enterprises. Secondly, the pos- 
session of resources simply means control over labor and cap- 
ital. Having resources, we can direct them whither we will. 
We may give them such direction that we ourselves will enjoy 



Consumption 283 

their products or that others shall receive this enjoyment, as 
when we spend it for the benefit of humanity. 

It is sometimes said that prodigality does no harm provided 
the money is spent at home. Those who talk in this way have 
not grasped the very simplest principles of political econ- 
omy. The mere money does not directly concern us in any 
significant degree. Money is only a small part of our wealth. 
In great industrial centers it" is merely "small change," 
and it is conceivable that circumstances may exist under 
which it would be the best thing for us to have money 
leave the country. If prices with us are abnormally high, 
foreigners cannot purchase our commodities, and our export 
trade will decline. What we have to consider in the case 
of prodigality is rather the destruction of materials and the 
labor which has been used up once for , all, whereas both 
materials and labor ought to have been wisely and pro- 
ductively employed. The one who has control over them is 
guilty of wasted opportunity. 

If luxury is a good thing for the people, how does it hap-)[ 
pen that the masses in oriental countries are so deplorably! 
poor, whereas the few indulge in the most wanton luxury q\ 
Or how, oil any such assumption, shall we explain the growing 
poverty of Eome under the emperors while luxury was con- 
tinually increasing until it became the most outrageous injj 
history? Pearls were dissolved in wine to make it expensive^ 
and tongues of birds which had been taught to talk were 
served at dinner because they were costly. Waste is waste, 
and no sophistry can make it anything else. If a large propor- 
tion of labor and capital are employed in the production of 
luxuries, precisely so much less is left for the production of 
the necessities, comforts, and conveniences of life. 

We must in the discussion of luxury as elsewhere distin- 
guish between "the seen and the unseen," the unseen in this 
connection meaning simply what is not readily seen. The 
writer is acquainted with a university town where the "scale 
of living," as it is called, or the general style of life, is set 
by university professors who are rich, and whose salaries are 



284 An Introduction to Political Economy 

not their sole income. Doubtless tradesmen and thoughtless 
spectators praise their expensive scale of living, and say, "It 
makes trade good." That is "the seen." The "unseen" con- 
sists in part of the pain which it causes to other professors 
and instructors who must live only on their salaries; and — 
what is a more serious consideration — the pain which it in- 
volves for the wives of the poorer members of the faculty. 
For them it is a continual harassing struggle between 
efficiency and self-respect, which detracts from their use- 
fulness and dignity. As for the rich professors, it is quite 
possible for them to live plainly, to set an example of "plain 
living and high thinking," and still spend all their incomes. 
Certainly no one is fit to hold a college professorship who does 
not see many ways in which all his own resources, however 
large, could be advantageously expended in advancing the 
interests of humanity in connection with the work of his own 
institution. In addition to this part of the unseen there is to 
be considered all that has been discussed in the preceding 
paragraphs. 

It has been said that luxury is a reserve fund ; that in times 
of general distress we have something which we may forego, 
and thereby ease over the hard times. There is some truth in 
this, but it is quite clear that widely diffused comfort, with a 
plentiful supply of savings institutions well patronized, is a 
far better reserve fund. After the Franco-German war, it 
was the frugal, thrifty classes who practiced simple living* 
that astonished the world with their reserve fund. When 
France called for billions of francs, peasants, artisans, me- 
chanics, and careful fathers of families came forward with 
their hard-earned savings, and subscribed for more bonds 
than were offered. 

At the same time it is true that if all should restrict them- 
selves to the bare necessities of life, a great portion of exist- 
ing capital and labor would be unemployed. It is pojssjble 
in every civilized land to produce more than the bare neces- 
sities for all. The author simply contends that luxuries are 
not necessary to give employment. Many costly things are 



Consumption 285 

desirable. Magnificent art galleries, grand universities, splen- 
did public schools of every grade, fine architecture, especially 
in public buildings and churches, extensive pleasure-grounds 
and playgrounds for the people in every city, and even in 
every town and village — all these are among the things on 
which vast amounts of capital and labor can be expended with 
propriety. These things, involving large outlays, ought to be : 
public institutions. It is the extensive and inclusive use, 
rather than exclusive pleasure and profit, that justifies the 
great expenditures. It has been characteristic of periods of 
national decay that private persons have indulged in expensive 
luxuries while public institutions were declining and neglect- 
ed. In the time of Pericles, the days of the glory of Athenian 
democracy, one third of the revenues of the state were ex- 
pended in plastic and architectural art ; in the time of Demos- 
thenes, the comparative shabbiness of public buildings was 
such as to excite complaint. 

Avarice is injurious, but it is probably less dangerous, be- 
cause less seductive, than prodigality. The avaricious man 
sacrifices the end of life to the means and compels others to do 
so. He may increase the wealth of the country, but he allows 
no one to enjoy it fully, and fails to put it to the best use. 

Expenditures are justifiable which tend to the development 
of our faculties. The requirements of ethics are that we 
should develop ourselves and help to perfect the rest of hu- 
manit}^. If we neglect our own highest development, human- 
ity suffers. When we weigh in the balance our own needs and 
those of others we should have this in mind. We should also 
strive to render ourselves independent, so that we may not 
become a burden to others. If our generosity results in our 
own impoverishment, it is ill-advised, and may produce more 
harm than good. 

Self-sacrifice is ethical, but self-sacrifice when degenerated 
becomes asceticism. Asceticism is self-denial for its own sake 
and not for the sake of others. It is like the perversion of 
charity. Charity in one of its forms, almsgiving, was once in 
the history of the Church exercised for the sake of the needy, 



286 An Introduction to Political Economy 

but when the Church became degenerate the so-called charity 
was exercised for the sake of the giver, and became thought- 
less, inconsiderate, and a curse to the world. 

We should cultivate inexclusive pleasures rather than exclu- 
sive pleasures. A picture is an inexclusive pleasure. Thou- 
sands may enjoy it. Costly wines are exclusive pleasures. 

We should also aim to cultivate varied and harmonious con- 
sumption. Variety and harmony in consumption conduce not 
only to heightened enjoyment, but also to economy. To take 
simply the matter of food, it is easy to see that one who has 
acquired a liking for very many dishes can more surely and 
more cheaply gratify his appetite in spite of the changing con- 
ditions which travel or the seasons or lesser chances may bring 
about. By harmonious consumption is meant the consump- 
tion of goods or services in such combinations as will produce 
the maximum of satisfaction. A homely illustration is af- 
forded by the common practice of eating together bread and 
butter. 

Association for use of things consumed increases their 
utility. A public library or a public art gallery serves as an 
illustration of this statement. Associations for use of means 
of communication and transportation make railway service 
cheap. Associations for cooking and serving food have been 
proposed, and cooperative kitchens may yet spare overworked 
mothers much toil and help to develop the home-life of the 
masses in great cities. 

Wasteful Consumption. — Under this topic we must first 
notice that what is often called a waste is really productive 
consumption. If nothing is left to show for what is consumed, 
we must call it a waste. If the consumption of an article like 
tea, however, really promotes domesticity, and cheers and 
soothes the mind, if it adds to the comfort of life of those who 
have few pleasures, it is by no means a waste. Something is 
left to show for it. Expenditures for recreation, for whole- 
some entertainments, for whatever promotes domesticity and 
sociability, are among the most productive. It ought not to 
be necessary to add that in all these cases the limit should be 



I -^•--.-•l-j..w - „ 



Consumption 287 

drawn by the criterion of real benefit, and by a balance of 
directly social and directly individual considerations. 

It does, however, often happen that nothing is left to 
show for consumption. In such cases, there is a destruction 
of concrete and abstract utility — a waste. 

Every change of fashion involves waste, a partial destruc- 
tion of values created. Fires are wasteful, and any effort to 
diminish their frequency or to extinguish them expeditiously 
deserves the heartiest commendation. 

Nature is continually engaged in wasteful destruction of 
economic goods, and man is obliged to wage a continual war- 
fare with her. This waste goes on all the time, and in man- 
ifold ways, but the most important economic waste is caused 
by the death of man, the chief agent in production. 

Unwise consumption is a partial waste, and in this respect 
the American people are guiltier than any other civilized nation. 
In the West and North we have come to consume wheat for 
bread, to the almost total neglect of corn and rye. Often the 
sole reason is that wheat is more expensive. Even for our 
wheat bread we use flour so finely bolted that some of the best 
elements have been removed. In our rural districts, and too 
often even in the cities, we use only few kinds of vegetables. 
We use an insufficient variety of meats, and in large sections 
of the country we reject some of the best parts of meat-ani- 
mals. Professor Patten has shown that this renders food 
needlessly expensive. For the variety of soils is very great, 
some being suited to certain food products, others to a differ- 
ent kind, and so on indefinitely, and when we use varied foods 
each soil can be put to the best use, but when we demand 
principally one or two kinds of food we shall find these often 
grown on land not best adapted to their growth, as when 
wheat is produced on land most suitable for maize or barley. 

Consumers and Producers not Two Distinct Classes.— 
Drones excepted, consumers and producers are the same peo- 
ple. Producers want consumers, but they want only those 
who have something to give in exchange. If they want merely 
to part with their things, they can find beggars in abundance 



288 An Introduction to Political Economy 

to relieve them. Now something to give in exchange implies 
production, and production increases demand for commodi- 
ties. It is a mistake to look at economic life exclusively from 
the standpoint of either producers or consumers. The free- 
traders have been too inclined to consider only the consumers, 
the protectionists only the producers ; and thus a tendency to 
one-sidedness has been fostered. At the same time it must be 
frankly acknowledged that there is more danger to be feared 
from an exclusive consideration of producers, since there are 
so many kinds of production and the interests of producers 
are so diverse. There is not the same diversity of interests 
among men regarded as consumers. Nevertheless, both ex- 
tremes ought carefully to be avoided. 

Crises. — We come again to the topic of crises in industrial 
life. Crises are attended by a glut in the market, and it is 
frequently said that they are caused by over-production. A 
French economist, M. Jean-Baptiste Say, however, has devel- 
oped what is called a theory of the market — quite generally 
accepted by economists — according to which no such thing 
as over-production exists, or can exist until all wants are 
satisfied. He says that the remedy for apparent over- 
production is more production. Men bring commodities 
to the market. What do they desire ? Not money, says Say, 
but commodities, money being a mere medium of exchange. 
Now we have already seen that a consumer is a producer. II* 
there is a deficiency of consumers, it must be because those who 
would like to consume have not produced economic goods for 
exchange. According to this theory, then, over-production, 
so-called, is really under-production. There is a large meas- 
ure of truth in this theory. When are we most troubled with 
a glut in the market? Undoubtedly when least is produced. 
When is there the most ready sale for commodities? Un- 
doubtedly when everybody is at work, or when most is being 
produced. 

There is, however, another side to the question. It is quite 
possible to produce a larger quantity of some commodities, 
such as potatoes, cotton, cloth, etc., than people need. More 



Consumption 289 

railways are often produced than the people need at the time. 
The effect of disproportionate production, by which is meant 
production of commodities in different proportions than exist 
among the various human wants, is this : Some commodities 
cannot be exchanged. Those who have produced them, there- 
fore, do not make their normal purchases. Hence there is a 
falling off in sales of some other commodities which would 
have been taken by these first producers, and among those en- 
gaged in producing these other wares some cease to produce. 
Demand again falls off in this case, and still others cease to 
work, as already explained. There is disproportionate produc- 
tion and over-production of some things, and finally general 
over-production, owing to under-consumption, due in turn to 
lack of purchasing power. 

Eemedies for over-production or under-consumption are 
many. Whatever improves industrial society in any respect 
is a partial remedy. It is especially desirable, however, to 
bring producer and consumer as near together as possible, 
because it often happens at present that mutually desired 
products cannot, as a matter of fact, be exchanged. Obstruc- 
tions to trade should be reduced to a minimum, where they 
cannot be removed altogether. In this connection it should 
be mentioned that toll-roads are among the worst of obstruc- 
tions to free exchanges, and are an anachronism which no 
enlightened community should tolerate. 

Control of Consumption. — Sumptuary laws, designed to 
control consumption, and particularly to prevent extrava- 
gance, have frequently existed in the past. They are now 
generally considered antiquated, but it can scarcely be doubted 
that in the past, in a time different from ours, they have done 
good. Historical institutions generally have had good 
grounds for their existence, which they no longer have when 
they outlive the period in which they were a natural growth. 
As a rule, sumptuary laws are not adapted to modern con- 
ditions. 

The temperance agitation is designed to control consump-* 
tion of one kind, and, whatever may be thought of particular 



290 An Introduction to Political Economy 

measures, it is, on the whole, an excellent thing. It has arisen 
out of the needs of the time. It aims not to diminish con- 
sumption as a whole, but only one kind of consumption. 
There have been in Europe and America numerous remark- 
able instances of increased general consumption following a 
decreased consumption of intoxicating beverages, showing 
that capital and labor have found more abundant opportuni- 
ties than before for profitable employment. 

Several states have attempted a limited control of the con- 
sumption of tobacco by making it a punishable offense to sell 
cigarettes to boys, and if any way to enforce the law can be 
found, the example of such states is worthy of imitation. 

The control of consumption is so difficult that it must be 
left for the most part to voluntary agencies, like the Church, 
and to other associations formed for this and other purposes. 
Eulers and leaders of society can do much by a praiseworthy 
example of simplicity and frugality. The sovereigns of Prus- 
sia, the House of Hohenzollern, deserve commendation for 
their example, in this respect, which has helped to make Ger- 
many powerful. 

Curiously enough, "one of the worst forms of extravagance 
in the past, as in the present, is connected with funerals. 
This evil has become so great with us that a society has been 
formed expressly to correct such extravagance. . 

Insurance is a control of certain kinds of consumption. 
Fire insurance, insurance against tornadoes, against accidents, 
etc., is a contrivance whereby individual losses are distributed 
among many, and the burden to any one reduced. It is a fine 
example of social solidarity of the right sort. Life insurance 
is somewhat similar, although it is in some of its aspects more 
like accumulation by saving a part of one's income. Sav- 
ings banks, building associations, mutual aid societies, and 
the like, help us to control consumption and to distribute it 
advantageously. 

Statistics of Private Consumption. — An analysis of the con- 
sumption of individuals, families, and societies is most in- 
structive. Such an analysis of the expenditures of a family 



Consumption 



291 



is called a family budget. Dr. Egnst Ijmgel, the former dis- 
tinguished head of the Prussian Statistical Bureau, who has 
been called the Nestor of German statistics, has advanced the 
theory that it might be possible, by a careful study of a suf- 
ficient number of family budgets for a period of years, to con- 
struct a sort of social signal service. His idea is that a knowl- 
edge of changes in the total expenditure and in expenditures 
for various items in a sufficient number of typical families 
would enable us to predict the coming of industrial storms. 
The theory has not, so far as the writer is aware, ever been 
fully worked out, but the thought is suggestive. 

The following tables and statements copied from the Re- 
port of the Massachusetts Bureau of Statistics of Labor for 
1885 are worthy of careful examination: 



ENGEL'S LAW.-PRUSSIA. 



Items of Expenditure. 



1. Subsistence 

2. Clothing , 

3. Lodging 

4. Firing and Lighting , 

5. Education, Public Worship, etc , 

G. Legal Protection 

7. Care of Health 

8. Comfort, mental and bodily recreation 

Total 



Percentage of the Expendi- 
ture of the Family of 



He 

go* 
£e8 




100.0 




100.0 



50 « O 

— ■ o c a *? 

a O oi Haa- 

ifiii 

fts| c S 



Per cent. 
50.0] 

18 - 0| 85.0 



15.0 



100.0 



"The foregoing table demonstrates the points upon the 
strength of which Dr. Engel propounds an economic law. 
"The distinct propositions are : 



292 



An Introduction to Political Economy 



"First. That the greater the income, the smaller the rela- 
tive percentage of outlay for subsistence. 

"Second. That the percentage of outlay for clothing is ap- 
proximately the same, whatever the income. 

"Third. That the percentage of the outlay for lodging or 
rent, and for fuel and light, is invariably the same, whatever 
the income. 

"Fourth. That as. the income increases in amount thej)er- 
centage of outlay for sundries becomes greater." 

The following table gives the percentages of expenditures 
for an income of $754.42 in Massachusetts in 1875 and 1883, 
and compares these with those called for by Engel's law for 
Prussia : 

PERCENTAGES OF EXPENDITURES. 



Items of Expendi- 
ture. 


Mass. Budg- 
ets, 1883. 


Engel's Prus- 
sian Law. 


Mass. Bureau 
Table, 1875. 


Average. 


Subsistence 


49.28 
15.95 
19.74 
4.30 
10.73 


50.00 
18.00 
12.00 
5.00 
15.00 


56.00 

15.00 

17.00 

6.00 

6.00 


51.76 


Clothing 


16.32 


Rent 


16.25 


Fuel 


5.10 


Sundry expenses 


10.57 


Totals 


100.00 


100.00 


100.00 


100.00 



The following table compares expenditures of working class 
incomes in Illinois and Massachusetts with the expenditures 
made by a family of the middle class in Germany : 

COMPARATIVE PERCENTAGES OF EXPENDITURES BY THE FAMI- 
LIES OF WORKINCMEN IN ILLINOIS, MASSACHUSETTS, GREAT 
BRITAIN, AND PRUSSIA. 



Items. 


Illinois. 


Massachu- 
setts. 


Great Brit- 
ain. 


Prussia. 


Average. 


Subsistence 

Clothing 

Rent 


41.38 
21.00 
17.42 
5.63 
14.57 


49.28 
15.95 
19.74 
4.30 
10.73 


51.36 
18.12 
13.48 
3.30 
13.54 


55.00 
18.00 
12.00 
5.00 
10.00 


49.25 
18.27 
15.66 


Fuel 


4.61 


Sundries 


12.21 


Totals 


100.00 


100.00 


100.00 


100.00 


100.00 



Consumption 293 

These tables will help us to understand the social troubles 
of our time. They show that the amount which workingmen 
have for all the higher wants and for health and recreation 
is still extremely small. Civilization has developed the higher 
wants, but improvements in the distributive processes of in- 
dustrial society have not kept pace with the development of 
these wants. 



Literature. — Devine, Economics (which lays special em- 
phasis upon consumption, endeavoring to make it the central 
thing in the discussion) ; Patten, Consumption of Wealth, 
Stability of Prices, Theory of Social Forces; Roscher, Po- 
litical Economy, English translation, Book IV; J. B. Say, 
Political Economy, American edition, Book I, chapter xv. 
20 



PART VI 
PUBLIC FINANCE 



Introductory 297 



CHAPTER I 

INTRODUCTORY 

Earlier economic treatises had no special part devoted to 
public finance, but usually included a few more or less valuable 
observations on taxation under some more general head, such 
as "functions of government/' or "consumption." When the 
treatment was included under consumption, it was implied 
that government consumed, but did not produce, and such a 
sage remark as this embodied the economic wisdom of many a 
text-book : "That tax is best which is least in amount !" The de- 
velopment of economic science in recent years has been so rapid 
that arguments against any discussion of finance in an ele- 
mentary treatise are now likely to take this shape : "The sub- 
ject of finance is so truly immense, and its peculiarities are so 
many and so far-reaching in their character, that it is better 
to make a separate science of it, at least a separate volume of a 
larger whole, and not to enter upon topics which cannot ade- 
quately be presented in short space." It is true that the 
difficulties of one who would say anything about public finance 
in ten or a dozen pages are not a light matter ; yet, on the other 
hand, it does not seem scientifically satisfactory to pass over 
one of the most important parts of political economy without 
a word. Indeed, it is not necessary. An impression of the na- 
ture and scope of finance may be presented to the reader with- 
out any attempt to enter into details, which in so short a space 
would be simply confusing, and even misleading. 

What is Public Finance? — Public finance is often defined 
as the science which deals with the acquisition of the public 
revenues, with their administration and their expenditure. 
Regarded not as a science by itself, buFas a part of political 
economy, the definition must be correspondingly changed. 

In speaking of the subject, we often, perhaps generally, say 



298 An Introduction to Political Economy 

simply finance, instead of public finance, but as the expressions 
private finance and private financiering, which have a very 
different meaning, are also used, public finance may properly 
be employed as more explicit. The use of the word here given 
is that which corresponds to the same word in the languages 
of the continent of Europe, and is that which is found in the 
most careful English authors. Curiously enough, a careless 
employment of the word finanoe, which renders it equivalent 
to a discussion of money and banking, has become too com- 
mon. We thus have popular works which profess to treat of 
finance and yet say nothing about it, for money and banking 
belong to another part of political economy. 

Significance of Finance. — The business of government is the 
largest business in any great modern nation. A man died a 
number of years ago who left to his family two hundred mil- 
lions of dollars, and his fortune was spoken of as colossal. 
To-day the annual revenues of our various governments in the 
United States, federal, state, and local, are six times that 
amount, or about twelve hundred millions of dollars. The 
capitalization of the Western Union Telegraph, one hundred 
millions or more, is considered enormous, but the surplus 
revenue of the United States government above the necessary 
expenditures for a single year has more than once equaled 
that sum. 

The Independent or Sub-Treasury System. — The business of 
government is so large and so widely permeating in its char- 
acter that it affects vitally every other business in the coun- 
try. If our government received a large surplus in money 
every year and kept it from circulation, we would shortly have 
a stringency in the money market which would produce a terri- 
ble panic. It, is in fact, this, among other things, which ren- 
ders a surplus federal revenue so difficult a problem. The 
United States alone among nations locks up its money. This 
is a feature of what is called our independent or sub-treasury 
system. The federal revenues flow into these sub-treasuries and 
can regularly get out only in payment of claims on the United 
States, whereas other governments have some kind of connec- 



Introductory 299 

tion with banks, usually national. banks, and do not take out 
of circulation the money received. It has more than once be- 
come necessary in the past to pay interest on the federal 
debt — the bonds — before it was due, in order to restore the 
money to circulation, and time bonds have been purchased at 
a premium before they were due in order to put the money into 
circulation. Over $30,000,000 was thus paid out by the Treas- 
ury during the fiscal year ending June 30, 1900. It has also 
been deemed necessary by the Treasury Department to leave 
public money on deposit with national banks in order to avoid 
its withdrawal from the money market, although such a pro- 
ceeding is somewhat irregular and contrary to the spirit, if 
not to the letter, of the law which established the independent 
treasury. 

Government Business. — We have another range of consid- 
erations connected with the financial affairs of government. 
Government is to-day the largest employer of labor in the 
country, and all other employers and employees are more or 
less affected by the manner in which it treats its employees. 
Shall government as employer be influenced by the demands 
of ethics? Undoubtedly. As government is an ethical per- 
son it ought to be the model employer, insisting upon justice 
in service and granting justice in conditions of service and 
in its remuneration. 

Government Expenditures. — The importance of finance 
becomes even more apparent as we gain familiarity with the 
magnitude of the revenues and expenditures of governments 
in modern times. The fact is often cited that the expendi- 
tures of England from 1685 to 1841 increased forty times, 
while the population trebled ; but this is only one of hundreds 
of facts, all equally striking. The increased expenditure is 
found alike in every modern nation. The French budget, as 
the detailed statement of revenues and expenditures is called, 
showed expenditures of more than one thousand millions of 
francs in 1828, for the first time, and there was general alarm 
on account of the large expenditures ; but since that time no 
French budget has called for smaller expenditures, while in 



300 



An Introduction to Political Economy 



1860 they amounted to two thousand millions of francs, and 
since then they have never been less than that sum. In 1877 
they were over two thousand six hundred millions, and, add- 
ing local expenditures, over three thousand millions. To-day 
the total expenditures are about four thousand millions a year. 
The expenditures of Great Britain decreased after the Napo- 
leonic wars on account of cessation of war expenditures, which 
are always abnormal in amount; but we notice a steady ten- 
dency to increase since 1833, as indicated by these statistics: 
1833, £48,786,047; 1843, £55,360,511; 1859, £64,805,872; 
1874, £73,211,815, and including payment for Alabama 
award, £76,328,040; 1875, £74,328,040"; 1880, £84,105,754; 
1885, £89,092,883; 1890, £86,150,000; 1895, £94,175,000; 
1899, £108,150,235. The local expenditures of Great Britain, 
as of all other countries, have also been increasing even more 
rapidly than national expenditures. 

The following table shows the increase in the federal ex- 
penditures of the United States at various periods since 1828 : 



Years. 


Civil 
establishment. 


Net ordinary 
expenditures. 


Net ordinary ex- 
penditures, in- 
cluding interest, 
but not expendi- 
tures on account 
of the public debt. 


1828 


$3,676,053 
5,645,184 
27,977,978 
85,264,825 
90,401,267 
105,773,190 


$13,296,041 
20,650,108 
60,056,754 
220,190,603 
327,983,049 
447.553,458 


$16,394,842 
22,483,560 

63,200,875 


1844 


1860 


1887...' 

1897 


267,932,180 

365,774,159 

♦487,713,791 


1900 







The following table shows the increase in expenditures of 
the federal government from 1796 to 1887, the increase in 
expenditures of the fourteen states of 1796 during the same 
period, and finally, the increase in expenditures of all our 
states up to 1887 : 

* It is to be observed that the expenditures of the Post Office Department 
are excluded in this table in so far as they are defrayed from postal reve- 
nues. In 1900 the postal revenues amounted to $102,354,579. 



Introductory 301 

1796. 1887. 

Federal expenditure $5,790,651 $267,932,180 

Expenditure for civil government in states mentioned. 1,000,000 65,000,000 

Expenditure of all the states 1,000,000 101,534,523 

The state taxes of Ohio were nearly forty-nine times as great 
in 1899 as in 1826, while the taxes for local purposes were 
more than one hundred and thirty times as great.* The local 
taxes of New York increased fourteen fold between 1827 and 
1887. 

These increased expenditures are not due to dishonesty. 
Probably, on the whole, administration of government has im- 
proved rather than deteriorated during the present century, 
and where government is most undoubtedly honest we find 
larger increase than in many other places. The administra- 
tion of most American cities is inefficient and too often cor- 
rupt, but the administration of English and German cities is, 
as a rule, unquestionably pure, and that of German cities is 
conducted by men trained for this work. Yet the expenditures 
of these cities appear to have increased as rapidly, and in many 
instances, in Germany at least, more rapidly, than those of 
American cities. We are dealing here with world-wide phenom- 
ena. The explanation is easy, and proves what has already 
been stated in this book, that while government activity is 
wiser than previously, it was never before so extensive and 
important. The functions of government are measured in a 
rough sort of way by expenditures of government, and after we 
have made due allowance for depreciation of money and other 
counteracting forces, we must admit that the present genera- 
tion, and still more the present century, has witnessed a mar- 
velous and, on the whole, beneficial extension of the business 
of government, accompanying a diminution in petty interfer- 
ence with individual action. Public schools will readily occur 
to one as a new source of expenditure everywhere in the civil- 

* This result is secured from the auditor's report by deducting from all 
taxes the amount of state taxes, and thus obtaining the local taxes. For 
reasons which cannot be here explained this may lead to errors of some im- 
portance, but the accuracy is sufficient for present purposes. 



302 An Introduction to Political Economy 

ized world. Sewerage, sanitation, gas and electric lights, pub- 
lic parks, public baths, public libraries — all these are among 
new items in the budgets of cities. Fine state universities all 
over the world are being supported by enlightened democratic 
sentiment out of public funds. Already some of the great- 
est American universities are among the state universities of 
the West. The rapid advance of these universities has fulfilled 
the prophecy of the author, as made in the 1889 edition of this 
work, even more quickly than he had anticipated. Expendi- 
tures for works of art are common. This has been especially 
true of Europe, but Boston, New York, and other great Amer- 
ican cities make increasing contributions for art galleries and 
similar purposes. In fact, American advance in this matter 
has been particularly rapid and gratifying in these last years 
of the century. Expenditures for police have recently become 
enormous. It is a disgrace to some American cities that their 
police costs as much as their public schools, though it is in 
keeping with the notion that government must only repress 
and must not prevent wrongdoing. It is a little more than 
half a century since the old constabulary in England was re- 
placed by a regular police force, the change being made by 
the government of Sir Eobert Peel; from whose connection 
with the movement the police are called sometimes "bobbies" 
and sometimes "peelers." 

With some unfortunate exceptions these increased expendi- 
tures of governments are a sign of health, and do not, when 
fairly considered, reveal any tendency on the part of govern- 
ments to absorb an undue proportion of our industrial life. 

Comparisons of the Expenditures and Revenues of Govern- 
ments. — Comparisons of the expenditures and revenues of 
different governments are misleading unless made with care. 
The United States, Germany, and Switzerland are federal gov- 
ernments, while France, Italy, Great Britain, and most coun- 
tries are single or unitary states. What the central govern- 
ment of France does embraces what in federations is done by 
both federal and state governments. But even when this is 
borne in mind, many other facts require attention. What in 



Introductory 303 

one country is done by a single city, may in another country 
be in whole or in part the work of a province or state. We 
must also ask in every case of comparison, "What is received 
in return for what is paid out ?" In Baltimore the mediaeval 
custom obtains of compelling everyone to sweep the street in 
front of his house — a most expensive and wasteful proceeding, 
yet one which does not appear in the budget of municipal ex- 
penditures. It costs many times what it would if done by a 
well-organized municipal service, which would nevertheless 
increase taxes. In this case, therefore, increased taxation 
would be a saving. We must ask in comparing municipal ex- 
penditures : "Are streets well paved, well cleaned, and in the 
summer well sprinkled with water? Are there provided for 
the citizens, schools, libraries, art galleries, and the like ?" We 
must further distinguish between expenditures and revenues 
from taxes, because there are other sources of revenue than 
taxation. American city governments cost much in taxes in 
proportion to what they give, because they neglect these other 
sources of revenue. Frequently European cities, instead of 
paying for services like gas, electric lights, etc., make them a 
source of revenue. A few years ago, it cost the taxpayers of 
Berlin less to govern the city and to provide its magnificent 
schools of all grades, to pave the streets — better than they are 
paved in any American city — to furnish parks, and to do a 
great many things which we have not attempted, than it did 
those who lived in Boston to govern their city, though it was 
less than half the size of the German capital. 

Revenues of Government. — There are three main perma- 
nent and regular sources of revenue. These are productive 
domains,"industries, and taxation in the large sense of the 
term, including fees and special assessments. There is one 
chief temporary and limited source of revenue : namely, loans, 
which must be repaid out of the other three. There are also 
various minor sources of revenue, such as gifts, escheats — or 
property which falls to the state in default of heirs — and 
"conscience money" — a term applied to money sent without 
name by those who have defrauded the government. 



304 An Introduction to Political Economy 

Gifts amount to more than is ordinarily supposed, although, 
of course they are relatively a small matter. Formerly gifts 
were frequently made for general expenditures of government. 
Less than a quarter of a century ago a citizen of New Jersey 
left the United States nearly a million dollars to be used in 
paying the federal debt. But gifts are now more generally 
made for special purposes, as when Mr. Smithson left the 
United States government half a million dollars to be used in 
the foundation of the Smithsonian Institution for the ad- 
vancement of science. A philanthropic American millionaire 
has given large endowments to city libraries in our own coun- 
try and abroad. A Maryland citizen a few years ago left to 
one of the counties in his state nearly a hundred thousand 
dollars for the improvement of its public roads. While the 
writer was a student in Heidelberg a fine road was being made 
in that city from the proceeds of a private gift. These are 
simply illustrations. Public schools receive many gifts, but 
neither as many nor as important gifts in the United States as 
do schools and other institutions which have been founded on 
private endowments. In other countries the case appears to 
be different. France, and particularly Paris, has received 
large gifts for such institutions. When our governments be- 
come better they will undoubtedly receive greater and more 
numerous gifts. 

Productive Domains yield considerable sums in Germany. 
It is generally thought that governments should part with 
agricultural land. Not a great deal of arable land is retained 
by governments, although there is not as strong a tendency 
to part with what remains as there was a generation ago. 
Some time ago, German states began to sell off their landed 
domains, forests excepted, because it was supposed that pri- 
vate parties could manage them better. But later experience 
seems to throw doubt on this assumption. Instead of being 
sold outright, land may be kept and leased. Thus the title to 
our American Western domains might be kept by the United 
States or vested in our separate states and the use parted with 
for a period until we gain further light on the best form of 



Introductory 305 

industrial organization. It is interesting to notice that a more 
conservative policy in the matter of sales of public land is 
now meeting with favor, particularly on the part of some of 
our Northwestern states. In the case of school lands, some of 
these states have by their constitutions and statutes provided 
that such lands must be leased, and if sold at all, must be 
kept for a higher price than they would now bring. But no 
one would like to see our American states or the federal gov- 
ernment engage extensively in agriculture, as things are at 
present. This, of course, is not opposed to the continuance or 
extension of the present system of model farms and agricul- 
tural experiment stations. 

Industries, except those of a monopolistic nature, have not, 
as a rule, succeeded well as government undertakings. Model 
industrial establishments, however, may be maintained, in the 
manner of our model farms. Some important industries, like 
the manufacture of fine china, took their origin in govern- 
ment establishments. Natural monopolies may be made to 
yield a large part of ordinary public revenues, especially in 
large cities, but ordinary manufacturing industries should be 
rejected from the field of government business. Agriculture, 
like manufactures and commerce, is properly the domain of 
private enterprise. 

Public Debts. — Great national debts are something compar- 
atively new in the world's history, their origin, indeed, being as 
recent as the reign of William and Mary in England. How 
important they now are is apparent in this quotation from 
Professor Henry C. Adams's admirable work on Public Debts: 
"The civilized governments of the present day are resting 
under a burden of indebtedness computed at $27,000,000,000. 
This sum, which does not include local obligations of any sort, 
constitutes a mortgage of $722 upon each square mile of terri- 
tory over which the burdened governments extend their juris- 
diction, and shows a per capita indebtedness of $23 upon their 
subjects. The totals amount of national obligations is equal 
to seven times the aggregate annual revenue of the indebted 
states. At the liberal estimate of $1.50 per day, the payment 



306 An Introduction to Political Economy 

of accruing interest computed at five per cent would demand 
tthe continuous labor of three millions of men. Should the peo- 
ple of the United States contract to pay the principal of the 
world's debt, their engagement would call for the appropria- 
tion of a sum equal to the total gross product of their industry 
for three years ; or, if annual profits alone were devoted to this 
purpose, they would be enslaved by their contract for the 
greater part of a generation." 

Alarm has often been expressed on account of these debts. 
On their present gigantic scale they are undoubtedly a mis- 
fortune, and should be reduced as soon as possible. No serious 
apprehension seems to be called for, however, so far as Ger- 
many, England, and the United States are concerned. The 
productive property owned by Germany is more than suffi- 
cient to pay her debts, the railways alone in several of the 
German states paying the entire interest on the debts and 
even leaving a surplus. England is gradually making head- 
way against her burden of debt, and the author's investiga- 
tions have shown that American states and cities, as well as 
the federal government, are rapidly extinguishing their debts. 
The state debts are small. Many states owe nothing; in 
others, the debt is merely nominal, all the bonds being owned 
by the state. A few Southern states only have within re- 
cent years had trouble with their debts. Our cities, too, are in 
this respect placing themselves on a solid basis. In the 
main, Americans, with their unparalleled public credit, may 
feel warranted in optimistic views, so far as public debts are 
concerned. 

Constitutional Limitations. — There is a tendency — spring- 
ing out of fright which was partly premature — to place undue 
constitutional restrictions upon the power to create debts. 
This tendency ought to be checked. It places states and cities 
at a disadvantage as compared with private corporations. It 
also tends to throw into the hands of private corporations 
all those enterprises which cannot be paid for out of one year's 
revenues, but which nevertheless properly belong to the public. 
Gas works afford an illustration of this statement. Moreover, 



Introductory 307 

when great improvements, which. are to last for generations, 
are to be effected, it is but proper that part of the burden 
should be borne by taxpayers in future years, and this can be 
effected only by loans. At the present time excessive limita- 
tions, unworthy of a free people, make it impossible for some 
states to improve their own property. Would it not be wiser 
to provide for the extinction of all debts within thirty-five 
years — or say forty as a maximum — that the present may not 
unduly burden the future? Special precaution should be 
taken against hasty action. In many cities no loans can be 
made until the people have by vote approved of them. One of 
the most distinguished of the mayors of American cities has 
expressed the fear that even with universal suffrage such a rule 
would tend to ultra-conservatism and would prevent really 
needed improvements. The writer hardly thinks this fear 
warranted by experience. 

Land Nationalization and Municipalization. — A large num- 
ber of American citizens are to-day adherents and devoted 
advocates of a scheme for entirely abolishing taxation, as that 
word is ordinarily understood to-day. The scheme is that pro- 
posed by the late Mr. Henry George, a man of wonderfully, 
earnest human sympathies and of very strong and sincere con- 
victions. The proposed governmental policy of finance, to 
which reference has just been made, was, perhaps, never stated 
more clearly and concisely than in the following words, writ- 
ten by Mr. George and printed in his own organ, The 
Standard : 

"The Standard advocates the abolition of all taxes upon 
industry and the products of industry, and the taking, by taxa- 
tion upon land values, irrespective of improvements, of the 
annual rental value of all those various forms of natural op- 
portunities embraced under the general term, Land. 

"We hold that to tax labor or its products is to discourage 
industry. We hold that to tax land values to their full amount 
will render it impossible for any man to exact from others a 
price for the privilege of using those bounties of nature in 
which all living men have an equal right of use; that it will 



308 An Introduction to Political Economy 

compel every individual controlling natural opportunities to 
utilize them by employment of labor or abandon them to 
others ; that it will thus provide opportunities of work for all 
men, and secure to each the full reward of his labor ; and that 
as a result involuntary poverty will be abolished, and the 
greed, intemperance, and vice that spring from poverty and 
the dread of poverty will be swept away." 

It is here definitely proposed that the state shall take the 
pure economic rent of land, and the claim is made in ex- 
planation and justification of the policy that it will abolish 
poverty. Such a policy might, indeed, prevent people who do 
not care to use their land from keeping it out of the hands of 
those who would use it, but how it would bring about all the 
predicted blessings, it is difficult for most people to understand. 
With the best will and with every desire to be unprejudiced, 
the writer has never yet seen how pure economic rent of agri- 
cultural land can be separated from the annual value of the 
improvements on and in the land. But apart from all this, 
the appropriation of economic rent by the public without com- 
pensation to present owners will never, in the writer's opinion, 
appeal to the conscience of the American public as a just 
thing. No abstract reasoning, based on assumed natural 
rights, will persuade a modern nation to take such a step. 
This honestly and earnestly advocated policy is one of many 
illustrations of the danger of basing social reasoning on any 
theory of "natural rights." 

In cities it is easy to separate pure economic rent from rent 
for improvements. In fact, as the author has stated else- 
where in these pages, such separation is frequently made in 
cities to-day. The principal evils of private land-holding are 
seen in cities, and the objections to land nationalization do not 
wholly apply to land municipalization. Many will favor the 
latter who reject the former, but even in this matter one 
should proceed cautiously. No confiscation should for a mo- 
ment be tolerated, but if great and expensive changes are de- 
sired, the burden should be diffused by means of inheritance 
and other taxes throughout the community equitably. 



Introductory 309 

Literature. — Adams, Finance and Public Debts; Bastable, 
Finance; Cohn, Science of Finance (translated by Veblen) ; 
Daniels, Elements of Public Finance; Ely, Taxation in 
American States and Cities, chapter iv, Part III (for some 
cautious steps in land municipalization) ; Henry George, 
Progress and Poverty; Plehn, Introduction to Public Fi- 
nance; Seligman, Essays in Taxation. 
21 



310 An Introduction to Political Economy 



CHAPTER II 

TAXATION 

Private Property. — Just as the State — using the word 
"State" in its generic sense to include our federal government 
as well as that of the separate commonwealths — determines 
what shall be private property, so, too, it determines the con- 
ditions of the existence of private property. Nowhere has 
there ever existed any such thing as absolute private property. 
The rights of private individuals have always been of a more 
or less limited nature, and among the rights reserved by the 
people in their organic capacity will be found in every civilized 
state the right to take, for such purposes as the lawmaking 
power may deem fit, a portion of the wealth produced by its 
citizens. The aim, of course, should be the promotion of the 
public welfare. 

As has been said, there are no limitations upon the right of 
the state to take private property. It is said on high authority 
that as the state for its purposes can require us to give up 
our lives, so it can also ask us to surrender our private prop- 
erty. John Stuart Mill holds that public utility is the only 
basis on which private property can rest, and he bases his ar- 
gument against socialism on the ground that the public wel- 
fare is best served by private property in the greater part of 
the instruments of production. 

Constitutions in the United States are the basis of the in- 
stitution of private property, and thus largely control taxa- 
tion, but constitutions themselves of course change from time 
to time and are but one kind of law — the fundamental law — 
to which other laws must conform. 

We see, then, that the right to tax is a part of the right of 
private property. The two have grown up together, and are 
alike defended by constituted authorities. It may, therefore, 



Taxation 311 

be said that to attack the one right is to attempt to invade the 
other. Curious as it may seem, Henry George, while denying 
the right of private property in land, disputed also the right 
of government to lay taxes, as ordinarily understood, and 
called taxation robbery. 

Our conception of taxation removes a multitude of con- 
fused notions. Lawyers of ten .say that taxation is a payment 
for protection, yet their law books tell them that those laws 
which apply to payments and to debts arising out of failure 
to make payments do not at all apply to taxes. Again, it is 
sometimes attempted to defend public schools on the ground 
that they add to the value of private property, as if that con- 
sideration were supreme and final, whereas it is solely a ques- 
tion of the welfare of the land. Property is but a means to an 
end, and the end is man. The elements of private contracts 
are not present in taxation. 

Government a Partner in Production. — Taxes have been 
defended on still another ground. It is said that government 
participates in all production, and is as much a factor in the 
creation of wealth as is land, labor, or capital. This is indeed 
so, for without government — if such a state of things were for 
us conceivable — we would have anarchy and a return to bar- 
barism, which would destroy all production. The argument 
continues by asserting that, as government is a factor in pro- 
duction, it is entitled to a share of the wealth produced. This, 
too, is a sound position, but it must not be overlooked that 
peculiar principles regulate the share of government. The 
portions which go to land, to labor, and to capital are deter- 
mined, in a great measure, by voluntary agreement, whereas 
government by virtue of its own sovereignty determines what 
share it shall take. It may be asked, then, What guarantee 
have we that government will not take an undue share of the 
annual income of the country ? And the answer must be, The 
same guarantee that we have that government will not abuse 
its other powers; the guarantee that inheres in the moral 
sense and in the self-interest of those who govern. Govern- 
ment is not, as we too often thoughtlessly regard it, something 



312 An Introduction to Political Economy 

superimposed upon the people, something extraneous to them. 
In a true republic, at least, it is rather the people themselves 
in their organized capacity, and the question of a guarantee 
against undue exaction by government is only this, Will the 
people injure themselves, or suffer themselves to be injured? 
Every defense of self-government rests upon the hypothesis 
that they will not thus injure themselves or submit to injury 
at the hands of others. 

General Principles. — Just as it is essential that any reform 
of taxation should be based on a clear conception of taxation, 
so it is further necessary, if we would act well, that we should 
proceed to a correct understanding of some general proposi- 
tions applicable to taxation. 

First of all, it is to be remembered that taxation, when 
viewed in its results, may be looked upon as a blessing rather 
than an evil. This sounds paradoxical, does it not ? Neverthe- 
less, it is true, as will be found on an examination of the his- 
torical development of constitutional governments, that tax- 
ation was the instrumentality whereby the common people 
obtained their liberties. Monarchs needed revenues, and were 
obliged to ask for them; as a matter of fact, they could not 
secure sufficient and regular revenues otherwise. These rev- 
enues have been granted by the people conditionally. "Yes," 
the people said to their sovereigns, "we will grant you the 
revenues if you will grant us our demands." Thus step by 
step popular rights have been secured. The total abolition 
of taxation would undoubtedly be one of the most effective 
and most dangerous blows to popular government which it 
could well receive. 

Taxation Increases with Freedom. — Very generally in- 
creased freedom is accompanied by increased taxation. Com- 
pare despotic Kussia's state expenditure for schools, which 
a few years ago amounted to only thirteen cents per capita, 
with that of the enlightened and free republic, the state or 
canton of Zurich, in Switzerland, which at the same time 
amounted to about one dollar and twenty-five cents per capita. 
It may be more correct, however, to say that governmental ex- 



Taxation 313 

penditures are large in all civilized nations; for, as we have 
explained, expenditures are one thing and taxes are another, 
because there are other sources of revenue than taxation. 

Small expenditures mean small results, and no other 
money we pay out yields larger returns than does money paid 
in taxation, provided always that it is prudently expended by 
a good government. Let a small house-owner in a city like 
Buffalo, who pays, say, fifty dollars a year in taxes, reflect on 
what he receives in return. Dollar for dollar, what other ex- 
penditures are there for which he receives so much ? Streets, 
libraries, free schools, protection to property and person, 
including that afforded by the health department, pleasure 
grounds royal in their magnificence — all these are placed at 
his service. What private corporation ever gave one fifth as 
much for the same money ? When we compare various coun- 
tries at the present time we find that expenditures of barba- 
rous and backward countries are small. In some, doubtless, 
there is no real taxation, for the tribute of the East is differ- 
ent in its nature from taxation ; it is more like ransom — some- 
thing exacted of a subjugated people, not self-imposed taxes. 
In the same way if we compare the past with the present, we 
shall find large increase in expenditures going along with ad- 
vance of civilization. 

Taxation and Production. — Another advantage of taxes 
is mentioned by the Scotch political economist, McCulloch, 
and may perhaps be best described in his own words : "They 
stimulate individuals to endeavor, by increased industry and 
economy, to repair the breach taxation has made in their 
fortunes, and it not infrequently happens that their efforts do 
more than this, and that, consequently, the national wealth is 
increased through increase of taxation. 

"But we must be on our guard against an abuse of this doc- 
trine. To render an increase of taxation productive of greater 
exertions, economy, and invention, it should be slowly and 
gradually brought about, and it should never be carried to 
such a height as to incapacitate individuals from making the 
sacrifices it imposes by such an increase of industry and econ- 



314 An Introduction to Political Economy 

omy as it may be in their power to make, without requiring 
any very violent change in their habits. . . . Such an excess- 
ive weight of taxation as it was deemed impossible to meet 
would not stimulate but destroy exertion. Instead of produc- 
ing new efforts of ingenuity and economy, it would produce 
only despair." 

Compare with this the statement quoted by Eand in his 
Economic History since 11 '63, from Walpole's History of Eng- 
land: "Even the taxation which the war necessitated had 
stimulated the manufacturers to fresh exertions." 

Let us consider another paradox : No country was ever yet 
ruined by large expenditures of money by the public and for 
the public. Countries have been ruined by evils connected 
,with taxation. Robbery and extravagance have accompanied 
both expenditures of government and taxation, and these have 
ruined great nations. Rome is an instance of this. The case 
of France before the Revolution is also instructive. Books are 
full of the evils of burdensome taxes in pre-revolutionary 
France, but the truth is that the total amount raised by tax- 
ation in France was small as compared with nineteenth cen- 
tury taxation. The trouble was that the burden was unjustly 
distributed, the wealthiest classes shifting the taxes to the 
shoulders of the weak and defenseless,* while the proceeds 
were largely expended for the military establishment and in 
maintaining a corrupt and extravagant court. France has 
since then prospered under heavier taxation. The taxes over 
which our forefathers in this country and in England fought, 
bled, and died were not large, and the taxes in themselves were 
not the real grievance. It was evils connected with taxation 
against which they successfully struggled. 

Public Parsimony. — Let us next turn our attention to some 
of the evil results of undue economy, or, more properly speak- 
ing, niggardliness. 

In Philadelphia the death rate from typhoid fever rose in 

* Vauban, one of the greatest of the French economic writers of the eight- 
eenth century, brings this out clearly in his work, Prqjet (Tune dixme Hoy ale, 
published in 1707. 



Taxation 315 

the winter of 1898 to a point almost unparalleled in the city's 
history, and this despite the great advance in sanitary science, 
which is the boast of our day. Yet it was everywhere recog- 
nized that by a proper expenditure for water supply the evil 
could have been avoided. 

Short-sighted parsimony in cities is continually leading to 
waste and destruction. Our great cities are now failing to 
provide sufficient school accommodations for children of school 
age, and large numbers are growing up to take their place 
among the ignorant and vicious poor. We can see in our 
national capital many results of the idea that that is the best 
administration which spends least. It is on this account that 
Congress has never yet made an adequate appropriation for 
the library of the Bureau of Education, which is doing so 
valuable a work. It is on this account that heads of bureaus 
will not ask for money which they know they could use for the 
public advantage. It is on this account that clerks have some- 
times actually found it difficult to get blotting paper and pen- 
cils for their offices. When, some years ago, Congress reduced 
the appropriation for the national library building from ten 
to four million dollars — a mistake subsequently corrected — one 
Congressman, in advocating the more generous appropriation, 
said truly, "Ten millions is, after all, only a per capita ex- 
penditure of twenty cents." But another Congressman re- 
plied, "Twenty cents means three loaves of bread." Perhaps 
this was a bid for labor votes, but could demagogism go 
further? The best part of the press laments such unseemly 
parsimony, but it should remember that niggardliness is a 
legitimate outcome of the notion that that is the best admin- 
istration which spends least. 

We must guard against parsimony as well as extravagance. 
In at least one respect the former is the more dangerous, be- 
cause it more readily conceals itself beneath the mask of 
patriotism. We praise a private individual who spends bounti- 
fully, when his expenditures are justified by the results. The 
case of a city should be similar. We must be very careful, very 
prudent. What is needed is a more careful examination of 



316 An Introduction to Political Economy 

particulars. We praise and we blame too much "in a lump." 
To cities and countries, as well as to individuals, does this 
proverb of Solomon apply : "There is that scattereth, and yet 
increaseth; and there is that withholdeth more than is meet, 
but it tendeth to poverty." This danger of parsimony is em- 
phasized by the author on account of the vast amount of non- 
sense frequently to be heard about the large expenditures of 
states and cities. More or less is wasted, to be sure, and more 
or less is stolen, but, after all, it is comparatively little; and we 
have found that governmental expenditures have increased 
most rapidly where there is not even a suspicion of corruption. 
They are looking for a Utopia who seek to reduce very greatly 
expenditures of modern states and cities. We can make no 
headway against a strong current of national life like that 
which brings about increased expenditures of governments. 
We must rather try to guide and direct it. 
We have three main facts to bear in mind : 

1. We must set our faces against all extravagance, jobbery, 
and robbery. 

2. We must avoid the "too much" and the "too little." 
Prudent liberality will yield best results. We must look ahead. 
To conserve future interests is one of the special functions of 
government. 

3. It is a hard thing for some to live under present burdens. 

The remedies for the evils connected with taxation are in 
general of three kinds : 

1. True economy, but not parsimony. 

2. Better adjustment of the burdens of taxation. 

3. Better utilization of public resources. 

1. True Economy, but not Parsimony. — Economy, in the 
true sense of the word, means careful and prudent manage- 
ment, avoiding all waste and extravagance, but also avoiding 
parsimony. Economy is always needed, because our resources 
are limited in proportion to our true wants. We are prepared 
to indorse as strongly as others economy in public finance. 

2, Better Adjustment of the Burdens of Taxation.— Oui 



Taxation 317 

national taxes fall chiefly on commodities, and taxes of this 
kind are generally called indirect and regressive. They are 
not proportioned to the value either of the property or of the 
income of citizens, and are very generally regarded as unjust 
to the poorer classes unless counterbalanced by other taxes 
which bear more heavily on the rich than on the poor and 
well-to-do. 

Indirect federal taxes are of two kinds : customs duties, or 
taxes on imported commodities; and the taxes which collect- 
ively produce what is called our "internal revenue," including 
excise taxes — taxes on articles produced in the United States 
— and taxes on transactions, such as receipts, bank checks, 
promissory notes, deeds, and mortgages. Internal revenue 
taxes were until the outbreak of the Spanish war confined to a 
few products, like oleomargarine, tobacco, and intoxicating 
beverages, the two latter then yielding nearly all of the inter- 
nal revenues. In order to raise the extra revenue needed for 
the prosecution of the war, new taxes were laid upon proprie- 
tary medicines, tobacco, spirits, and many forms of transac- 
tions, such as telegraph and telephone messages, and bank 
checks, and, most important of all, upon inheritances and be- 
quests. These have been continued, and there is reason to 
believe that we shall be familiar with internal revenue taxa- 
tion in its widened scope for some time to come, although a 
considerable reduction in the amount of the taxes and in the 
number of things taxed will probably be made. Among those 
who have studied the question there seems to be a general 
sentiment in favor of the retention of taxes on those articles, 
produced in the country, which were taxed by the federal gov- 
ernment before 1897. The question of free trade and protec- 
tion is not involved. When the national government depends 
exclusively upon revenues from taxes on imported articles the 
revenues are too uncertain and too irregular, and sometimes 
yield least when most is needed. 

The state and city revenues are largely raised by taxes on 
property. Such taxes, and taxes on incomes, are called direct 
taxes. Property in states and cities is generally valued and 



318 An Introduction to Political Economy 

all taxed at a uniform rate. The difficulty is that real estate 
— that is, lands and houses — is visible, and can readily be 
found by tax assessors, while a great deal of property — say, one 
half of all property — is in the form of stocks, bonds, in- 
struments of credit, and the like, and often cannot be found 
at all. The result is that real estate generally pays an undue 
share of taxes. Competent business men in Boston, including 
the president of the Boston Merchants' Association, Mr. 
Jonathan A. Lane, estimated a few years ago that in their city 
personal property was four times as valuable as real estate, 
although assessed for only one fourth as much. 

In New York state the proportion of the state tax which 
was raised on personal property fell from twenty-five per cent 
in 1867 to less than twelve per cent in 1899. Yet the state 
comptroller, in his report for 1900, expressed a positive convic- 
tion that personal property in New York state to-day exceeds 
in value the real estate. In the same report it is stated that in 
1897 personal property bore less than one tenth of the total 
burden imposed upon property by state and local taxation. 
Similarly, in the report of the Ohio tax commission of 1893 
occurs this statement : "It is confidently believed that no ap- 
preciable part of the intangible property existing in the city 
counties is reached by our method of taxation/' Yet since that 
same year — 1893 — according to the auditor's report for 1900, 
the valuation of personal property on the tax rolls had actually 
decreased nearly seven per cent by the year 1899, while the 
valuation of real estate had increased over five and seven tenths 
per cent. The result in New York and Ohio and elsewhere 
must be evident to all. While it is true that a good deal of 
personal property consists of stocks and bonds of railway cor- 
porations and other corporations already taxed, it is likewise 
true that personal property is not paying its proper share of 
taxes. The existing system places a greatly disproportioned 
share of the burden of the expenses of government upon those 
who are least able to bear that burden. 

The problem is a better adjustment of the burdens of state 
and local taxes, so as to make those pay their share who own 



Taxation 319 

invisible or easily concealed property ; also so as to make that 
considerable class contribute something to the support of 
government who have little or no property, but enjoy, never- 
theless, large incomes, sometimes larger than the accumula- 
tions of the lifetime of the ordinary man. 

Income Tax. — An income tax has often been suggested as a 
suitable remedy. Our American experience, however, goes to 
show that under our political and constitutional system of 
government it is extremely difficult to frame an income tax 
law for one of our separate states of such character that it 
will reach incomes and prove even moderately fruitful of 
revenue. Income taxes have been tried by many American 
states, and it is scarcely too much to say that in experience 
they have proved farcical. On the other hand, the decision of 
our Supreme Court in 1894 declaring unconstitutional any 
practical scheme of income taxation has precluded the possi- 
bility of a federal income tax for a long time, if not perma- 
nently. This condition of things is regretted by many, inas- 
much as the world's experience is increasingly favorable to 
this form of taxation. The contrast between an income tax 
and our general property taxes is most marked. The latter be- 
come worse and worse the longer they exist, whereas in the 
case of an income tax, wherever a rational one has been laid, 
as in Switzerland, Prussia, and England, the longer it lasts 
the better it works, and the more general is the popular 
approval. 

Inheritances and Bequests can be made to yield more than 
at present without any infringement of the rights of indi- 
vidual property. A world-wide movement in the direction of 
a larger taxation of property as it passes from generation to 
generation is one of the most remarkable phenomena of our 
time which public finance has to offer. Generally speaking, 
the taxation increases in accordance with two principles, 
namely, as the property inherited becomes larger, and as the 
relationship of the person to whom it passes becomes more dis- 
tant, distant relatives and strangers in blood ranking together. 
This movement has not gone so far in the United States as 



320 An Introduction to Political Economy 

elsewhere; nevertheless, some of our states tax at a low rate 
the devolution of personal property, even when it passes in 
direct line, as, for example, New York and Illinois, while the 
federal government imposes a rate of taxation on personal 
property, even in direct line, and rising to fifteen per cent in 
the case of large property inherited by a distant relative or a 
stranger in blood. 

Collateral inheritances are taxed by several states — notably 
by New York, Illinois, and Pennsylvania — but why should 
collateral inheritance except by bequest be allowed at all except 
among near relatives ? Why should third cousins inherit from 
one another at all unless money is left by will? Are third 
cousins nearer to one, or have they a juster claim upon one's 
bounty, than the town or city in which he has lived, and where 
he has been able to acquire a fortune? The extent to which 
intestate collateral inheritance is carried is a survival of the 
sentiment of the time when people lived in clans, and in our 
day is a ridiculous anachronism. Eight and duty should be 
coordinated. Am I compelled by law to support an uncle who 
is unable by incapacity to earn a livelihood? Then I should 
inherit from him; otherwise, unless he leaves me property by 
will, it is at least open to question whether or not any part of 
his property should fall to me. The property should go to the 
state in the absence of near relatives when no will is made. 
By "near relatives" we mean those to whom relationship is 
a real vital matter. The enlightened English jurist, Jeremy 
Bentham, wished to restrict inheritance and extend escheat, 
and thus to abolish taxation altogether. This, however, is an 
extreme to which the author would be unwilling to go. 

It is an interesting question in finance as to whether the 
taxation of bequests and inheritances should be by the federal 
or the state government. Several of the states had already in 
1898 begun to develop the practice of such taxation. It is to 
be presumed that if the United States continues to tax inherit- 
ances, the movement on the part of the states may be checked. 

Technical Terms. — Several terms must be explained which 
readers will meet in their studies in finance. Proportional 



Taxation 321 

taxes are taxes in exact proportion to the property or income 
taxed. Progressive taxes are those in which the rate per cent 
increases with increasing property or income; as where one 
per cent is the rate on the first thousand dollars taxed, two per 
cent on the second thousand, and so on. Progressive taxation 
is often called graduated taxation. A tax is regressive when 
the rate per cent increases as the property (or income) taxed 
decreases. If a man with five thousand dollars is taxed only 
two per cent, while one with three thousand is taxed three per 
cent, the tax is a regressive one. Business-license taxes in 
Maryland, and generally in Southern states, are regressive. 
Indirect taxes are said to be, in their effect on the citizens, re- 
gressive. When we have one uniform rate of taxation, but un- 
equal assessment, the wealthy being assessed relatively less 
than the well-to-do and the poor, we also have a sort of regress- 
ive taxation. A tax is said to be degressive when a certain 
sum is exempt from taxation, or when lower rates of taxation 
are laid upon amounts below a fixed sum, and all income above 
that sum is taxed at one uniform rate. If all incomes of six 
hundred dollars were exempt from taxation, while all incomes 
above that sum and only on that excess were taxed, say one 
per cent, it would be degressive taxation. Income taxes are 
often degressive. Degressive taxes are also called progres- 
sional. 

3. Better Utilization of Public Resources. — By this is 
meant that public property and its use should be paid for. 
Cities and states should stop making presents to corporations. 
If street-car companies use the streets, they should pay for the 
privilege. This is sometimes done, but too often the public is 
robbed. The Baltimore street-car companies, as has already 
been stated, pay to the city nine dollars for every hundred they 
collect, but this is not enough. When five-cent fares are 
charged, street-car companies in great cities can sometimes 
afford to pay as high as forty or fifty dollars to the city for 
every hundred they collect. Similar principles should be ap- 
plied to other corporations using streets, like gas, electric- 
lighting, and telephone companies. It is, however, still better 



322 An Introduction to Political Economy 

in most cases for the city to manufacture its own gas and 
electric lights and to provide itself with water. This part of 
our subject has already been sufficiently discussed for present 
purposes. 



Literature. — Seligman, Progressive Taxation in Theory and 
Practice; Essays in Taxation; The Shifting and Incidence 
of Taxation; Wells, Principles of Taxation; West, The In- 
heritance Tax. 



PART vn 

THE EVOLUTION OF ECONOMIC SCIENCE 



Introductory 325 



CHAPTER I 

INTRODUCTORY 

The explanation of economic life already given would in 
itself lead us naturally to look for a corresponding evolution 
of economic science, and this has indeed taken place. Every 
economic system, like every philosophical system, is to a 
greater or less extent a mirror in which are reflected the aims, 
the character, the time-spirit — in short, the entire life, na- 
tional, mental, spiritual — of the period in which it arose and 
of any later period in which it has received support, and of 
the place where it arose and of any other place where it has 
gained support. A man can no more escape entirely the in- 
fluence of his environment than he can lift himself over a 
fence by tugging at his boot-straps. One writer will reflect 
one part of the life of the people, a second another side of this 
life, and so on indefinitely. Thus we have a picture of the 
conflicting interests of the age. Dissatisfaction with an age 
and attempts at reform are likewise products of the time and 
place, and perhaps more clearly than anything else reveal its 
true character. This statement, however, must not be re- 
garded as an expression of political fatalism, for it is freely 
conceded that the will of man is always a main factor. 

These considerations show us the nature of the evolution of 
economic science and reveal to us the utility of the study of 
this evolution in the history of political economy. The pres- 
ent is a product of the past. 

The history of political economy points out past errors and 
enables us, or should enable us, to avoid a repetition of them. 
It trains us in habits of economic reasoning. Political econ- 
omy can never give ready-made answers to all the perplexing 
questions of practical life, and for this reason : the present is 
never quite like the past. Some new element is always in- 
22 



326 An Introduction to Political Economy 

volved. Nevertheless, old mistakes are often still mistakes 
when tried again, and these can frequently be avoided by a 
knowledge of what has been. A study of the evolution of eco- 
nomic life and its proper science may reveal to us the course of 
progress. It may — indeed, it does — reveal to us powerful on- 
moving currents which it were folly to attempt to turn back, 
but which, nevertheless, can be guided and directed within 
certain bounds. 

Reasons Why the Science is of Recent Origin. — Political 
economy as a distinct science began when there was first an 
attempt to treat systematically the general facts pertaining 
to the entire economic life of society, separating them from 
other facts as one branch of knowledge. This was first done 
in the latter half of the last century by writers of a French 
school whom we call Physiocrats. The science of political 
economy is, then, little more than one hundred years old. 

Political economy did not, however, come at once suddenly 
into being. Economic ideas are found in all the greatest 
writers of the past on politics, philosophy, and religion, and 
these gradually grew and developed until they were separated 
out of a larger whole and constructed into a separate science. 

The question is often asked, Why did not economic science, 
as a separate science, arise earlier in the world's history ? An 
examination of this history gives the answer. Let us, for in- 
stance, take the case of the Greeks. Why did the Greeks not 
have a complete political economy ? A second question will help 
us to answer the first. What have always been the two most 
fruitful sources of economic inquiry ? They have been finan- 
cial operations of governments and questions concerning labor. 
Now, great financial operations of governments are modern. 
The revenues of Athens at the beginning of the Peloponnesian 
War, in the fifth century before the Christian era, amounted 
to something like a million of dollars — a mere bagatelle in 
comparison with a modern national budget, which runs into 
the hundreds of millions. It has already been mentioned that 
national debts are scarcely two hundred years old. Taxes like 
those we know are also new. For over a century Rome was en- 



Introductory 327 

tirely untaxed, and Cicero, in one. of his works, speaks of taxa- 
tion almost as we might speak of a reign of anarchy. And 
what about labor in olden times ? Labor was despised. Aris- 
totle thought that all industrial classes — employers and em- 
ployees alike — were unworthy of citizenship. Yet this is not 
all ; political economy deals with industrial relations, and these 
relations were far less numerous and less important in ancient 
times, as has been explained elsewhere. 

When we pass on from Eome to the Middle Ages — the period 
following the breakdown of the Roman Empire — we find an 
unsettled condition of society, which would naturally retard 
the development of political economy. As other causes for the 
failure of the Middle Ages to develop a political economy may 
be mentioned the too exclusive devotion of scholars to religion 
and metaphysics, the absorption with ancient authorities, and 
the dread of originality. The great men of the Middle Ages 
had their own work, and this was the reconstruction of a 
civilization on the ruins of the Old World. Church and em- 
pire were the agencies for this reconstruction, and these 
absorbed the talent of the times. 

At the close of the fifteenth century a new world in the Oc- 
cident was discovered, which gave a new impulse to thought, 
and within two centuries forced new and strange economic 
phenomena upon the attention of Europeans. This new world 
has continued to force new phenomena of an economic nature 
upon the Old World even up to the present year, and has ever 
been a fruitful cause of economic study. 'The new course of 
trade to the East, which followed upon the discovery of the 
route to India around the Cape of Good Hope by Vasco da 
Gama in 1498, must be mentioned as still another cause of 
economic inquiry. 

The great Protestant Reformation in the sixteenth century 
effected radical changes in economic, political, and intellec- 
tual life, and with other causes gave rise to speculations which 
finally terminated in what is technically known in the history 
of political economy as the mercantile system. 



328 An Introduction to Political Economy 



CHAPTEK II 

ECONOMIC IDEAS IN THE ANCIENT WORLD AND IN THE 
MIDDLE AGES 

It is not proposed to present in this place a history of po- 
litical economy — a task which wonld require a far larger work 
than the present — but simply to indicate in the briefest pos- 
sible way the main currents of economic thought. 

The Orient. — Little attention is usually given by economists 
to the East, partly because it is probably insufficiently appre- 
ciated, partly because its general life has been so imperfectly 
investigated and materials for knowledge are still so imperfect 
and difficult of access, and, finally, because our young science 
has found more fruitful fields still unworked. The ancient 
Eastern nations were theocracies, under the guidance of priests 
who prescribed duties and often methods of economic action, 
frequently going into details. The ethics of economics were 
somewhat cultivated, and such as they were they were reduced 
to practice. They entered into everyday life as our higher 
ethical principles unfortunately do not. We find in the eco- 
nomic ethics of the East frequent warnings against the sins of 
wealth, pride, and arrogance, and exhortations to a kindly 
treatment of inferiors. Thrift and temperance were en- 
couraged, just weights and measures prescribed. A simple 
division of labor among economic classes took place, and these 
classes sometimes became estates. Indeed, Sir Henry Maine, 
in his work on Village Communities, says that in India to-day, 
with the exception of the two highest castes, "caste is merely 
a name for a trade or occupation." Conservatism was held to 
be a sacred duty, and radical changes were considered rebellion 
against the divine law. With such a social code progress be- 
comes almost impossible. National exclusiveness was a uni- 
versal policy. Trades, commerce, and manufactures were held 



Economic Ideas in the Ancient World 329 

in slight esteem, but agriculture met with more favor. The 
ethico-economic ideas of the Orient deserve special attention. 
The economic ideas of one oriental people, the Jews, have been 
fairly well preserved in the Bible. These should be studied 
more carefully than they have been by economists. Bibli- 
cal views about usury, debt, and land tenure are especially 
important. 

The Greeks. — The three writers among the Greeks who are' 
most interesting to the economist are Plato, Aristotle, and ! 
Xenophon, and of these by far the most important is Aristotle. 

Plato, in his Republic, describes a Utopia, his aim being to 
picture an ideal society in which the ills of society were to be 
corrected by a communistic state. He included a communism 
even of wives and children, thus going even further than do 
modern communists. Strange as it may seem, the communism 
of Plato admitted slavery, on which, indeed, his social super- 
structure rested as a base. Indeed, the ideal society of Plato 
was thoroughly aristocratic, for the benefits of communism 
were to be restricted to the higher orders. Plato was not ani- 
mated, as are modern socialists, with a desire to elevate the 
masses to a position of independence, still less to one of ruler- 
ship. The Laws of Plato is a more practical work. It aims 
to present not the best conceivable state, but only the best 
practical one, and deals to a greater extent with existing 
institutions. 

From an economic standpoint Aristotle's principal work is 
the Politics, and it is indeed one of the most remarkable books 
in the world's history. Its influence is strongly felt to-day, for 
it was carefully studied by theologians of the Middle Ages, and 
through them entered into the thought and life of their time ; 
and the thought and life of their time can be seen by the care- 
ful student to have entered in a thousand ways into the institu- 
tions of the nineteenth century. Gladstone, the great English 
statesman, was wont to say that the Politics of Aristotle was 
one of the three books from which he had learned most. 

Aristotle combated the communism of Plato, and advanced 
in favor of private property arguments which we can hear any 



330 An Introduction to Political Economy 

day littered as new and original truth. But Aristotle was no 
anarchist. He said that man is by nature a political being — 
more literally, a state being — and he accorded to the state 
large functions. Aristotle strictly subordinated the indus- 
trial life to the higher life-spheres of society. In this respect, 
as in many others, the most advanced political economy is a 
return to Aristotle. 

Aristotle, as did the ancients generally, taught the sinful- 
ness of interest. Money, he said, is barren. One piece of 
coin cannot beget another piece of coin ; hence interest should 
not be allowed. This is only a part of his argument, but the 
space is too brief for further presentation. It should be re- 
membered, however, that many of the arguments in favor of 
interest which are now heard would not hold for Aristotle's 
age. 

Among the works of Xenophon there may be mentioned 
as of special importance the Hiero, the Cyropcedia, and the 
Revenues of Athens. The first two are romances, describing 
an ideal state, and the third deals with the Athenian finances. 

The Romans. — There is even less to be said about the 
Komans than about the Greeks in a history of the evolution 
of economics. True, their economic life was remarkable and 
instructive, exhibiting, as it did, the disastrous consequences 
of slave labor and of an excessive concentration of wealth, 
particularly of landed property. Pliny said that the great 
estates, the latifundia, caused the downfall of Eome. More- 
over, the moral degeneracy of the empire was fruitful of eco- 
nomic consequences which deserve serious attention. Among 
these have already been mentioned wanton luxury and wide- 
spread poverty. But while the economic institutions of the 
Eomans and the manifestations of their character in their 
economic life will repay investigation, the Eomans themselves 
were not remarkable for independent thought. Their eco- 
nomic ideas, like their philosophical doctrines, were borrowed 
from the Greeks, and generally in the history of thought they 
occupy an inferior position. 

Cicero, Seneca, and the elder Pliny are to be mentioned 



Economic Ideas in the Ancient World 331 

among the philosophers whose economic ideas are noteworthy, 
and Cato, Varro, and Columella among the writers on agri- 
culture. 

Most important of all, however, are the jurists. Whatever 
may be its imperfections, the Roman law, the corpus juris 
civilis, is the most remarkable legal system the world has ever 
seen, and for training in careful and accurate statement is 
unsurpassed. As a training for economic studies Roman law 
is probably among the most valuable branches of learning. 
It gives us also invaluable information about the economic 
institutions and measures of Rome. 

Christianity. — The economic ideas of Christianity come 
next in point of time, but not next in the order of evolution. 
Christianity seems to be interposed here out of the logical 
order, and some will regard this as a proof of its divine ori- 
gin. Suddenly we pass from weak and imperfect ideas, many 
of which are now quite antiquated, to a sublime ideal of eco- 
nomic life which we are only beginning to try to realize. 
The most modern movement in economics, as it is in part a 
return to Aristotle, may also be regarded as in part a return 
to the teaching of Christ, although yet far from the ideal 
which he placed before men. Christianity asserts the honor- 
ableness of toil, which is the exact opposite of what the 
Greeks and other ancients had taught. Christ and his apos- 
tles were workingmen whom Aristotle would have deemed 
unworthy of citizenship. This had, both directly and indi- 
rectly, tremendous economic consequences. It has, among 
other things, been a constant force pushing in the direction 
of the emanicipation of labor. The doctrine of the brother- 
hood of man is a powerful economic factor. Let us bear one 
another's burdens. Let each one bear his own burden also. 
Let us be sure, so far as we may, not to be a burden to others, 
but at the same time let us help others. This tends to the con- 
servation of human energy and to the development of man's 
physical and other powers. 

The duty and the right of general enlightenment spring 
from Christianity. If humanity is so precious, as Chris- 



332 An Introduction to Political Economy 

tianity teaches, all the faculties of each person should be 
developed to their utmost. Education, with its undoubted 
economic value, follows necessarily. 

Benevolence, which, Professor Sidgwick, in his History of 
Ethics, says, is the distinctive teaching that Christianity 
added to ethics, tends to the maintenance and increase of 
efficiency of men and of the general productive power. 

The prohibition of luxury implied in the command to love 
our neighbor as ourselves tends to the preservation of nations. 
Self-sacrifice and self-control in this as in other directions 
have high economic value. 

The Middle Ages. — Little can be added, in our bird's-eye 
view of the subject, to what has already been said about eco- 
nomic speculation in the Middle Ages. The religious and 
moral aspects of economic questions were considered by the 
theologians, who absorbed the learning of the time, and the 
result of their labors is embodied in the canonical law — corpus 
juris canonici — which contains what we may regard as the 
Church doctrine of practical law in the Middle Ages. The 
most remarkable writer, from an economic standpoint, as well 
as from other standpoints, who falls within this period was 
undoubtedly Thomas Aquinas, the study of whose writings 
has been urged by the present pope. Aquinas treated chiefly 
two economic topics : just price — justum pretium — and inter- 
est. The conception of just price still lingers. The doctrine 
that all interest is sinful was in the sixteenth century modified 
and became the doctrine that excessive interest is sinful, and 
thus in later times usury has meant simply excessive interest, 
and not as formerly any interest at all. The teachings of 
Aquinas still exist in a modified form as a force in our 
thoughts and in our laws. Among his writings were com- 
mentaries on Aristotle, who was his spiritual father. In fact, 
the whole philosophy of Aquinas was Aristotelianism modified 
by Christianity. 

Professor Roscher, in his Finanzwissenschaft — the science 
of finance — has said that the schoolmen of the Middle Ages 
asked in their economic inquiries, What is ethically allowable ? 



Economic Ideas in the Ancient World 333 

that in the development of political economy we pass on to 
the fiscal jurists, who asked, What is legally allowable? that 
the economic writers and teachers of the early modern period, 
the mercantilists and the cameralists — : as the teachers of eco- 
nomic ideas to German officeholders were called — asked, 
What is useful ? and that, finalty, in most modern times econ- 
omists have reached a point from which they can see that real 
and permanent utility can be attained only through what is 
both legally and morally allowable. In other words, law, 
morality, and utility must harmonize. 



Literature. — Ashley, An Introduction to English Economic 
History and Theory, Part I, "The Middle Ages," Part II, 
"The End of the Middle Ages ;" Cossa, Guide to the Study of 
Political Economy; Ingram, History of Political Economy 
and History of Slavery; Sayce, Babylonians and Assyrians: 
Life and Customs. 



334 An Introduction to Political Economy 



CHAPTER III 

ECONOMIC IDEAS IN MODERN TIMES 

We now pass on to economic systems which have already 
been treated more or less frilly in the present work. In this 
place we can only gather together the threads and try to form 
a brief continuous narrative. 

The Mercantilists. — The mercantile system, also called by 
the names Colbertism, restrictive system, and commercial sys- 
tem, obtained from the early part of the sixteenth century 
until late in the eighteenth century, and its influence is still 
felt. Mercantilism is not, strictly speaking, the product of a 
school of political economists, but rather the name given to 
that economic policy of statesmen and to those detached 
economic views of writers which prevailed during this period. 
Most prominent among the statesmen who were mercantilists 
may be named Colbert, of France; Frederick the Great, of 
Prussia, and Cromwell, of England. Serra, an Italian, early 
in the seventeenth century presented a moderate and system- 
atic statement of mercantilism in a work entitled A Brief 
Treatise on Causes which make Gold and Silver Abound 
where there are no Mines. Thomas Mun, in England, a gen- 
eration later, wrote a valuable treatise from the standpoint 
of the mercantilists, called England's Treasure by Foreign 
Trade, or the Balance of our Trade the Rule of our Treasure, 
while Sir James Steuart's Inquiries into the Principles of Po- 
litical Economy, published in 1767, may be regarded as clos- 
ing the development of the theory of mercantilism. The one 
idea common to all mercantilists was this : a nation ought to 
strive to export a quantity of goods of greater value than it 
imports, in order that the difference may be imported in gold 
and silver and the home supply of the precious metals be thus 
increased. Everything else was subordinated to this policy. 



Economic Ideas in Modern Times 335 

A favorable balance of trade was the aim, and we therefore 
speak of their policy as being based upon "the balance of trade 
theory." Tariffs were laid with this in view, and protectionism 
was encouraged. But their protectionism was different from 
modern protectionism, for it was confessed, even openly, that 
the aim of the mercantilists was to make both agricultural 
products and labor cheap, in order that manufactured articles 
might be cheap and a large sale of them abroad effected. The 
exportation of raw material was often entirely prohibited. 
To the mercantilists political economy was the art of the 
statesman in its economic aspects. Sir James Steuart, in the 
work to which reference has been made, gives the following 
definition of political economy, which finely illustrates this 
attitude of the school at its best, and in which the old spell- 
ing, pointing to the origin of the word, was still retained: 
"(Economy in general is the art of providing for all the wants 
of a family with prudence and frugality. . . . What cecon- 
omy is in a family, political ceconomy is in a state. . . . The 
great art, therefore, of political ceconomy is first to adapt the 
different operations of it to the spirit, manners, habits, and 
customs of the people, and afterward to model these circum- 
stances so as to be able to introduce a set of new and more 
useful institutions. The principal object of this science is to 
secure a certain fund of subsistence for all the inhabitants, to 
Obviate every circumstance which may render it precarious, 
to provide everything necessary for supplying the wants of the 
society, and to employ the inhabitants (supposing them to be 
freemen) in such a manner as naturally to create reciprocal 
relations and dependencies between them, so as to make their 
several interests lead them to supply one another with their 
reciprocal wants." 

The fine historical sense disclosed in Steuart's definition, 
sharply contrasted as it is with the abstract speculations of 
the French physiocrats, should be noticed. Institutions must 
first be made to conform to the genius of a nation, and then 
the spirit, habits, and customs of the nation must be so mod- 
ified that new and better institutions can be introduced. It 



336 An Introduction to Political Economy 

is not possible to neglect the past, or to legislate as if it did 
not exist. 

The Physiocrats. — As has been said, the physiocrats were 
the first to present a rounded-out system of economic doctrine, 
and may thus be called the founders of our science. Quesnay, 
a physician; Gournay, a merchant, and Turgot, the statesman, 
are their three principal authors. The physiocrats taught the 
doctrine of natural laws, and as a consequence loudly pro- 
claimed the maxim, laissez faire. They taught, furthermore, 
that agriculture is the only pursuit which adds to the 
wealth of the country, and that additions to wealth must come 
from pure economic rent. In consequence of this they advo- 
cated the doctrine that all taxes should be levied on rent, and 
that all other existing taxes should be at once abolished. All 
taxes must, they thought, in the end come out of rent any- 
way, and it is better that the state should exact them from the 
landlord at once, instead of waiting until they have passed 
through iive or six hands and various profits have added to 
their amount. Naturally and consistently the physiocrats 
were ardent champions of free trade. 

Adam Smith. — Adam Smith, of Scotland, published in 
1776 the most influential economic treatise ever written. It 
was called The Wealth of Nations. Adam Smith is usually, 
though perhaps without justice to the physiocrats, called the 
father of political economy. His writings, critically exam- 
ined, are found to be very similar to those of the physiocrats, 
but further developed and modified by his Scotch training and 
habit of mind. We find in Adam Smith free trade, but less 
extremely stated ; laissez faire, but with more careful limita- 
tion; and the doctrine of natural laws and harmony of the 
working of the selfish interests, but more guardedly stated. 
Adam Smith, however, regards all industrial pursuits which 
are concerned with material things as truly productive, and 
does not propose to limit all taxes to rent. And yet even in 
this last matter, if the reader goes through the list of taxes 
which Smith rejects, he will find that not many things save 
rent are left to be taxed. 



Economic Ideas in Modern Times 337 

Mai thus. — At the close of the. last century Malthus pub- 
lished his celebrated work, The Theory of Population, in 
which he proposed what has since been known as the Malthu- 
sian theory. This was his main contribution to the evolution 
of economic science. 

Ricardo. — Ricardo's principal work is the Principles of 
Political Economy and Taxation, published in 1817. In this 
work Ricardo elaborated, although he did not originate, the 
usually received doctrine of rent, which, with some modifica- 
tions and further developments, is the one explained in this 
book. Rent, he said, is due to the niggardliness and not to 
the bounty of nature. In other ways, also, his doctrines have 
a pessimistic tinge, as when he teaches the natural difference 
of interest between wage-receivers and profit-makers, and the 
antagonism between the interests of landowners and all other 
classes of society. Personally he was a kind man, and without 
doubt sincerely devoted to the advancement of humanity, al- 
though he is considered so hard-hearted as an economist. Ri- 
cardo is remarkable for his extreme development of the ab- 
stract deductive method. It is especially noteworthy that 
this development is not in the writings of a professional 
scholar, but in the work of one of the most successful bankers 
and brokers of his day. Socialists claim that, developing still 
further, or to their logical outcome, the teachings of Ricardo, 
they arrive at socialism, and consequently Ricardo ranks high 
in the esteem of scientific socialists. 

John Stuart Mill.— John Stuart Mill, who lived from 1806 
to 1873, closed one period in the development of economic 
science and began another in England. He started as a 
thoroughgoing follower of Ricardo, but added so much to 
the Ricardian doctrines that his treatise became largely a new 
one. The old and new do not harmonize, however, and the 
result is a work which, while one of the most valuable of 
modern times, is yet full of inconsistencies. 

Roscher, Knies, and Hildebrand. — In 1850 these three 
young Germans came forward with a new method, which 
they called the historical. These writers and their successors 



338 An Introduction to Political Economy 

went back of the old premises, self-interest, private property, 
demand and supply, and analyzed and explained them. They 
traced the historical development of ideas, and one of them, 
Knies, challenged absolutism of theory and substituted the 
doctrine of relativism. Absolutism of theory takes two forms 
— perpetualism, or the teaching that a certain policy is good 
for all times, and cosmopolitanism, or the teaching that a 
policy is good for all countries. Knies held that policies are 
only relatively good or bad ; that policies must vary with time 
and place. The Germans thus took a new attitude with re- 
spect to free trade and protection, holding that neither was 
absolutely good nor absolutely bad, and that the correct policy 
of a country cannot be told without an acquaintance with the 
particular circumstances of the country. 

While the doctrine of the Germans is broad and liberal, it 
is at the same time conservative, for it teaches that improved 
conditions must be a growth, and must take their root in the 
past. Socialism springs rather from the abstract English po- 
litical economy than from the German political economy. As 
English socialists themselves claim, socialism went from Eng- 
land to Germany and has now returned to England. 

But even this is not all that is meant by the tendency desig- 
nated under the name historical school, and less accurately 
described as historical method. The expression historical 
school meant, and still means, many things. Perhaps it pri- 
marily signifies a purpose or even a philosophy of life. The 
ethical aim comes first. Most marked among the character- 
istics of the school is the supremacy it assigns to ethical con- 
siderations. To the demands of ethics, it is felt, the entire 
economic life should be made subservient. The historical 
school means a broad, catholic, progressive spirit. It carries 
with it a different view of the state than that which at the 
time of its origin prevailed outside the influence of the school. 
It rejects the attitude of the philosophers of the period of the 
French Eevolution. The state is held to mean simply a co- 
operative commonwealth. The spread of the influence of the 
historical school over the world may be termed a wave of 



Economic Ideas in Modern Times 339 

humanitarianism. It has both a negative and a positive mean- 
ing. It means rebellion against many of the accepted dogmas 
of the older philosophy and economics, bnt it also means a 
constructive effort toward improvement. 

The historical view has sometimes tended to fatalism. The 
relative justification of what exists has at times become almost 
an absolute justification, and there has even been a tendency 
to assume that whatever has been was at the time the best, and 
that, therefore, no mistakes have ever been made. 

The Austrians. — Three men take prominent rank as found- 
ers of the so-called Austrian school of economists — Professor 
Karl Menger, Professor Friedrich von Wieser, and Professor 
Eugen von Bohm-Bawerk. These economists have been re- 
ferred to so frequently in the course of the book, and their 
work is so recent and of such a character, that we need not 
treat of them at great length here. 

Professor Karl Menger was the first of the three to attain 
prominence, but perhaps the best known member of the group 
to-day is Professor von Bohm-Bawerk. Particularly to Eng- 
lish readers he is the most widely known because of the ex- 
cellent translation by Professor William Smart, of Glasgow, 
of Bohm-Bawerk's two books, Capital and Interest and The 
Positive Theory of Capital. Professor von Wieser's best 
known work, on Natural Value, has also been translated, but 
Professor Menger's General Principles of Economics, though 
an earlier work, has never been put into English. 

First of all, we may characterize the Austrians by the state- 
ment that they have closer affinities for the English econo- 
mists than for the German. They stand for a reaction to- 
ward greater emphasis on deduction as a method of economic 
study. To them the errors of the older English economists 
seem due not to a wrong method, but to a wrong use of the 
method. They would, therefore, amend the method by in- 
sisting upon a broader and truer basis for their deductions. 

The late Professor Jevons, of England, is to be credited 
with results in the theory of value very similar to those in- 
dependently achieved at about the same time by Professor 



340 An Introduction to Political Economy 

Menger, and since that time much more fully elaborated and 
applied by him and his associates. 

A great part of the work of the Austrians has hitherto been 
critical and destructive. They have been interested in sub- 
jecting the older work to critical analysis, with the hope of 
substituting sounder views. Thus, Professor von Bohm- 
Bawerk, in a work called Karl Marx and the Close of His 
System, has attacked the theory of the great German socialist. 
Nevertheless, as has been shown in the discussion of value and 
elsewhere in the present book, the constructive work of the 
school is fundamental. 

It would be a serious mistake, however, to conclude that 
there is an opposition at bottom between the work of the Ger- 
mans and that of the Austrians. Both have made a real and 
permanent contribution to the spirit of economic investiga- 
tion. It is probable that the science will never again stray so 
far from considerations of actual phenomena, or so far forget 
conditions of other times and other climes, as it has in times 
past. This we owe in great measure to the Germans. On the 
other hand, it is perhaps equally probable that the science will 
not again so far lose itself in an infinitude of details as to 
forget the mass — "fail to see the forest for the trees." And 
this we owe in no small degree to the work of the Austrians. 
Economic thought in its future developments will absorb 
what is best in the work and method of both schools, and will 
be the more careful as well as the richer by reason of their 
efforts. 

Economics in England. — Contemporary English economic 
thought seems to be suffering from the very brilliancy of early 
English economists. Successors of Adam Smith, Kicardo, 
Malthus, and Mill, the English econominsts of to-day, fre- 
quently show a timidity of thought quite in contrast with the 
daring originality of their predecessors. This timidity has 
resulted in diverting an undue share of their attention into 
processes of refinement of the older theory. The author would 
not undervalue caution in economic investigation, nor would 
he underestimate the really valuable work which even modern 



Economic Ideas in Modern Times 341 

English economists have done, but he cannot forbear mention- 
ing this lack of originality, a lack which is all the more strik- 
ing because it is precisely this quality of originality which in 
other fields of thought earns for England her fame. 

Probably the most widely known of present-day English 
economists is Professor Alfred Marshall, of the University of 
Cambridge. His best work is shown in his Principles of Eco- 
nomics, first published in 1890, passing through several edi- 
tions. The central thought of the work is thus expressed by 
the author: "The present treatise is an attempt to present a 
modern version of old doctrines with the aid of the new work, 
and with reference to the new problems, of our age." 

Another famous English economist of the present is Dr. 
William Cunningham, lecturer in Trinity College, Cambridge. 
Dr. Cunningham's contributions to economics have been es- 
pecially in economic history. His Growth of English Indus- 
try and Commerce is a classic in the field indicated by the title. 

Notable among the exceptions to the statement which the 
author has made regarding timidity in current English 
economics, is Mr. John A. Hobson, whose keen intellect and 
bold thought have contributed much to the world in pure 
economic theory and in the study of practical economic prob- 
lems. His best works are the Evolution of Modern Capital- 
ism; Economics of Distribution; and John Ruskin, Social 
Reformer. 

No account of the economists of to-day would be complete 
that omitted mention of Professor F. Y. Edgeworth, of Ox- 
ford University, secretary of the British Economic Associa- 
tion, and editor of its organ, the Economic Journal. Pro- 
fessor William Smart, whose translation of the works of von 
Bohm-Bawerk has already received mention, is also author of 
Studies in Economics and The Distribution of Income. Dr. 
John K. Ingram, of Trinity College, Dublin, who is a leader 
among those who advocate reform in economic methods, is 
perhaps best known through his excellent work on The His- 
tory of Political Economy, which is without an equal in the 
English language. 
23 



342 An Introduction to Political Economy 

Mr. and Mrs. Sidney Webb are best known through the 
published results of their study of industrial problems, al- 
though both of them are thorough students in the general field 
of economics. Few more important works have appeared dur- 
ing the last generation than the Industrial Democracy, which 
is the joint work of Mr. and Mrs. Webb. 

Economics in the United States. — First of all in any sketch 
of economic study in the United States, it is to be noted that 
no country has devoted to the study greater time and talent, 
and no country has accomplished more in that field during the 
last quarter century, than has our own. American history 
throughout has been a brilliant economic history, but up to 
the last twenty-five years no basis had been laid, and no class 
of thinkers h&d been prepared, for the study of the science 
which has such interest for our people. To-day American 
economists are so well known that it will be unnecessary to 
devote any lengthened space to a description of their work. 

Harvard University is one among the many American in- 
stitutions that have formed centers for economic influence of 
surpassing importance. Among the best known of its spe- 
cialists in the economic field should be mentioned the names 
of Professor F. W. Taussig, Professor W. B. Ashley, and the 
late Professor C. F. Dunbar. Harvard University has also 
contributed much to economic study by establishing The 
Quarterly Journal of Economics. 

Yale University counts among its faculty Professor W. G. 
Sumner and President Arthur T. Hadley, both well known 
through their writings. The latter, who was in 1899 chosen 
to the presidency of Yale, has written a work on general 
economics, and has made important contributions to the grow- 
ing body of economic literature on railways. Professors 
Schwab and Fisher, of Yale, are also among the prominent 
economists of the country. The latter is known especially for 
his contributions to what might be termed the mathematics 
or calculus of economics. The Yale Review, published by the 
University, devotes a part of its pages to contributions in 
economics. 



Economic Ideas in Modern Times 343 

Prominent among the economists in the faculty of Colum- 
bia University are Professors J. B. Clark, Richmond Mayo- 
Smith, and Edwin R. A. Seligman. Of these Professor Clark 
is best known for his contributions to economic theory, Pro- 
fessor Mayo-Smith for his work in statistics and economics, 
and Professor Seligman for his work in finance. Professor 
Franklin H. Giddings, though his chair in Columbia is that 
of sociology, has devoted much of his time and energy to 
economic theory and problems, and is ranked among the 
leading economists of the time. The Columbia Science Quar- 
terly is easily among the first of publications devoted to the 
discussion of economic, political, and social questions. 

The University of Pennsylvania numbers among its faculty 
Professor Simon N. Patten, one of the chief American con- 
tributors to the recent advance of economic theory, particu- 
larly in the development of a consistent theory of consump- 
tion. Professor Roland P. Falkner, recently of the same 
University, now of the Congressional Library, is well known 
for his connection with American statistical studies, particu- 
larly as the editor of the so-called Senate or Aldrich report of 
1893. The Annals of the American Academy of Political and 
Social Science, which is conducted by members of the faculty 
of the University of Pennsylvania, is another of the growing 
number of publications which are devoted in great part to 
economics. 

Johns Hopkins University, sometimes called the mother of 
teachers, has an enviable reputation among those interested 
in our science. An early leader among American institu- 
tions in the attention given to the subject, she still maintains 
an honored place. 

Cornell University is known to economists especially 
through the presence in its faculty of Professor Jeremiah W. 
Jenks, expert agent of the Industrial Commission; Professor 
Charles H. Hull, editor of a recent edition of the works of 
Petty ; and Professor Walter F. Willcox, one of the chief stat- 
isticians of the twelfth census. 

The limits assigned to this topic are all too narrow to in- 



344 An Introduction to Political Economy 

elude an adequate account of the colleges and universities 
which are forwarding the boundaries of economic science. 
The reader must be warned against the conclusion that those 
which are mentioned here are all that participate in the la- 
bors or the honors of economic service, or that those not men- 
tioned are to be disregarded or lightly regarded by students 
of the science. 

A word should be said of the universities of the West. Ad- 
vance has been particularly rapid among them. The name of 
Leland Stanford University, of the University of California, 
the University of Chicago, the University of Michigan, will 
quickly occur to every American student of economics as 
being well worthy of the high place which is theirs. Pro- 
fessor Henry C. Adams, of the University of Michigan; 
Professor Laughlin, of the University of Chicago, and Pro- 
fessor Fetter, of Leland Stanford, are among the best known 
of those who, in the universities of the West, are working in 
our field. 

The author cannot dismiss this opportunity to speak a word 
of particular praise for the University to which his energies 
have for nearly a decade been devoted. Called in 1892 to the 
directorship of the School of Economics, Political Science, and 
History in the University of Wisconsin, he has seen that in- 
stitution become an important center for the dissemination 
of economic teaching throughout the West. The wise liber- 
ality which here, as elsewhere, has characterized the state in 
its conduct of many of the Western universities has reaped a 
rich reward. Associated with the author in his present posi- 
tion are Professor W. A. Scott, Professor B. H. Meyer, and 
Professor E. D. Jones, all of whom have gained deserved 
recognition for their work in the field of political economy. 

A word still remains to be said regarding associations 
formed chiefly or solely for the advancement of economic 
science. Foremost among these is the American Economic 
Association, which was formed in 1885. The author's con- 
nection with this as one of its founders, and as its secretary 
for the first seven years of its existence, is to him a constant 



Economic Ideas in Modern Time 345 

source of gratification. The regular publications of the so- 
ciety have done much to stimulate interest in economic re- 
search and to spread afar knowledge of the science. Another 
association which numbers economics among the studies 
of its chief interest is the American Academy of Political 
and Social Science. Mention has already been made of the 
magazine which it publishes. 

The subject should not be closed without an acknowledg- 
ment of the indebtedness of the science to the interest and 
efforts of agencies other than colleges and universities. Not 
all can be so much as mentioned, but a mere reference to the 
work done by the Chautauqua movement, to the college and so- 
cial settlements in our great cities, to the labor and statistical 
bureaus in our federal and state governments, to the recently 
organized Bureau of Economic Eesearch, which owes its in- 
ception in great measure to Professor E. W. Bemis and Pro- 
fessor John R. Commons, and even to the recent prominence 
of economics in newspaper editorials, will serve to illustrate 
the manifold agencies now working to develop interest in our 
science, and to extend the boundaries of its achievement. 

With a country presenting the student so rich a field for 
economic investigation, pressing upon him so many difficult 
and intricate economic problems, and offering to all unsur- 
passed opportunities for academic instruction in the field of 
the social sciences, we can have no doubt that American 
economists of the future will be in the van of the world's prog- 
ress in the field to which the present volume has been devoted. 



APPENDIX 

U Suggestions as to Study and Courses of Reading in 
Political Economy 

2, Questions and Exercises 

3* Bibliography 



Appendix 349 



i. Suggestions as to Study and Courses of Reading in 

Political Economy- 
Suggestions. — Suggestions for the study of political economy, 
directed as they necessarily are to so many readers in so many 
different localities and situations, must be very general in their 
nature. 

First of all it may be said that the student should form habits 
of careful observation and should supplement by inquiry, read- 
ing, and reflection whatever he may have gathered from his study 
of this book. Those who are able ought gradually to get together 
a working library of economic books. Especially should this be 
done by those who have not free access to the few large general 
libraries of the country. To those who are at once able and will- 
ing to form such a private library the list of books given here- 
with will be of assistance. Few will be able to buy all of those 
mentioned, but those who earnestly desire it and whose interest 
in the subject is keen and permanent will find that by occasional 
purchases they can secure within a few years a large share of the 
books here named. Circles and schools can of course by cooper- 
ative effort secure larger working libraries in this as in other 
subjects than the individual reader ordinarily finds within his 
means. 

But besides and beyond the careful reading and study of the 
thoughts and investigations of political economists, there is a 
vast field of work for the individual student and for local circles 
and schools engaged in the study. Individuals and societies 
should in every possible manner and at every convenient time 
study the economic field in the actual working world. Circles 
and schools should from time to time call in the assistance of 
business and professional men and practical politicians. Thus, 
when banking is being studied and discussed, it will not be diffi- 
cult to have present a banker or banking clerk who will explain 



350 An Introduction to Political Economy 

at length and by illustrations bank-notes, checks, drafts, and 
bills of exchange, and will describe minutely the actual opera- 
tions of banking. In the same way, when taxation is the topic 
for study, local tax assessors and tax collectors should be invited 
to describe the actual working of the system in the administra- 
tion of which they are practically engaged. The same practice of 
calling in local practical experts should be followed whenever 
possible in the discussion and study of all economic topics. 

This last suggestion has even wider bearings. Every individ- 
ual student should be an investigator. Let him examine for him- 
self all the different kinds of money in circulation, and from this 
examination, supplemented by a reading of the laws, find what 
are the precise differences among different kinds of money. Let 
the student make a personal investigation of the operation of 
water-works, gas works, public roads, and the like. Let him 
compare for himself the methods and results attending private 
management of those public service concerns with the methods 
and results observable when the same service is supplied by the 
public. So, too, various methods of farming should be practically 
studied, and here the intelligent and successful farmer should be 
consulted as to the merits of different systems; 

Again, general reading, such as the reading of fiction, of 
poetry, of history, and, more than all else, reading of the current 
periodicals, should be made to subserve one's study of political 
economy. Fiction and history and accounts of travel alike 
abound in material which to the thoughtful economist is illu- 
minating. The magazines and papers of the day are filled with 
illustration and practical teaching for him who reads them in- 
telligently. Of course in all such reading there is the need of 
preserving carefully the critical instinct. Statements found in 
books or papers, upon which explanations may rest, should be 
weighed until their truth or falsity has been determined. But 
this need of care does not prevent such sources of information 
and illustration from having high value to the discriminating 
student. 

Courses of Reading. — In the preparation of the following 
reading courses certain guiding principles have controlled the 
selection of books and the order of presentation of the various 
courses. In the first place, the list -of courses is made sufficiently 



Appendix 351 

wide and broad to meet the needs of those who wish to put long- 
continued and systematic study upon the subject. From the list 
as thus given others who may wish to study political economy in 
its general aspects or who may wish to give exhaustive study to 
some few concrete topics will find it possible to select the courses 
which will fit their needs. No student who has appropriated the 
lesson which the author has tried to enforce in the present vol- 
ume will be satisfied in his study of concrete economic problems 
without further study of the general principles of the science and 
of industrial history as outlined in group I. Group III consists 
of such general works of reference as will be found of value in 
prosecuting any of the courses indicated under groups I and II. 
Group IV has been added for the benefit of the smaller class of 
students who are able and ready to extend their reading to the 
writings of French and German economists. 

Space forbids exhaustive lists of references in any of the 
courses of study. The reader will understand, therefore, that the 
omission of any work is not of necessity an indication that the 
author holds that work in light esteem. It has been his aim to 
include under each topic the names of books sufficient in number 
to furnish abundant material for the study of that topic. The 
student who reads them all or any considerable part of them 
will not be at a loss to continue his reading further, should he 
so desire. 

Group I. — Under group I fall naturally the general and funda- 
mental courses. While the author has followed the order which 
to him seems most advisable, he should in fairness state that 
many writers would advise the study of economic history before 
the study of general political economy. 

Course 1. General Political Economy. — Adam Smith, Wealth 
of Nations, in Ashley's Economic Classics series; David Ricardo, 
Principles of Political Economy and Taxation; John Stuart Mill, 
Principles of Political Economy; Charles Gide, Political Econo- 
my (translation) ; Wilhelm Roscher, Principles of Political Econ- 
omy (translation) ; Francis A. Walker, Political Economy (his 
larger work) ; William Smart, Introduction to the Theory of 
Value; Eugen von Bohm-Bawerk, Positive Theory of Capital 
(translation) and Capital and Interest (translation); Alfred 
Marshall, Principles of Economics; Richard T. Ely, Outlines of 



352 An Introduction to Political Economy 

Economics; Simon N. Patten, The Premises of Political Economy 
and The Consumption of Wealth and The Theory of Dynamic 
Economics; John B. Clark, The Philosophy of Wealth and The 
Distribution of Wealth; John A. Hobson, The Economics of Dis- 
tribution. The order in which these works are listed is in a 
rough way indicative of the order of evolution of modern eco- 
nomic thought. 

A careful study of general economic theory will naturally lead 
the student to investigate the course of development of the vari- 
ous special phases of theory, and the present attitude of econ- 
omists toward these. Thus independent studies have of late 
years been made of the theory of value, of rent, of profits, of 
interest, of prices, etc. It is unnecessary here to do more than 
point to the fact of this development. The student will find in 
the works cited references to writings on these special phases, 
and can thus pursue the subject further if he so desires. Edwin 
Cannan's History of Theories of Production and Distribution is 
an excellent general guide to such an advanced study. 

Course 2. Economic History. — William Cunningham, Growth 
of English Industry and Commerce During the Early and Middle 
Ages and Outlines of English Industrial History; J. E. Thorold 
Rogers, Six Centuries of Work and Wages and A History of Agri- 
culture and Prices in England and The Economic Interpretation 
of History; H. de B. Gibbins, The Industrial History of England; 
W. J. Ashley, Introduction to English Economic History and 
Theory; Townsend Warner, Landmarks in English History; B. 
Rand, Selections Illustrating Economic History since 1763; J. K. 
Ingram, History of Slavery; Arnold Toynbee, The Industrial 
Revolution; John A. Hobson, The Evolution of Modern Capitali- 
zation; Carroll D. Wright, Industrial Evolution of the United 
States. Of course, the greater number of students for whom these 
courses have been prepared will not find it possible to secure or 
study this entire list. The titles will suffice to enable the reader 
to make selections, and in the ground covered by the works the 
reader cannot go astray in choosing any of them. 

Course 3. The History of Political Economy. — The books that 
follow should be accompanied and supplemented by the volumes 
from which information regarding the history of political econo- 
my has been drawn. Thus with one of the following books as a 



Appendix 353 

guide the reader should go to Plato and Aristotle for informa- 
tion regarding political economy among the Greeks. Some of 
these sources have been edited by W. J. Ashley in a series called 
Economic Classics. 

J. K. Ingram, History of Political Economy; Luigi Cossa, In- 
troduction to the Study of Political Economy (translation) ; J. A. 
Blanqui, History of Political Economy in Europe (translation); 
L. L. Price, A Short History of Political Economy in England; 
also articles in Encyclopedia Britannica on the authors to whom 
reference is made in the above histories, and the Economic 
Classics, which W. J. Ashley has edited, including (1) Adam 
Smith, select passages; (2) Ricardo, six chapters; (3) Malthus, 
Selections from Theory of Population; (4) Mun, England's 
Treasure by Foreign Trade; (5) Jones, Peasant Rents; (6) 
Schmoller, The Mercantile System. 

Group II. — Group II includes courses of study regarding most 
of the stirring economic problems of our time. It is particularly 
in these courses that personal investigation should at every step 
check and either confirm or disprove conclusions reached by the 
authors cited. 

Course 4. Money. — W. Stanley Jevons, Money and the Mech 
anism of Exchange; Francis A. Walker, Money and Money 
Trade, and Industry; Horace White, Money and Banking; J 
Shield Nicholson, Money and Monetary Problems; Charles J. Bui 
lock, Essays on the Monetary History of the United States; J 
Laurence Laughlin, History of Bimetallism in the United 
States; M. L. Muhleman, Monetary Systems of the World; Report 
of the Monetary Commission of the Indianapolis Convention, 
edited by J. L. Laughlin. 

Course 5. Banking. — J. J. Knox, History of Banking in the 
United States; J. S. Gilbart, History, Principles, and Practice of 
Banking; C. F. Dunbar, Theory and History of Banking; Horace 
White, Money and Banking; C. A. Conant, History of Modern 
Banks of Issue; Report of the Monetary Commission of the In- 
dianapolis Convention; A. S. Bolles, Practical Banking; Walter 
Bagehot, Lombard Street. 

Course 6. Tariff. — C. F. Bastable, Theory of International 
Trade; G. J. Goschen, The Theory of Foreign Exchange; G. Clare, 
The A B C of the Foreign Exchanges; P. W. Taussig, The Tariff 



354 An Introduction to Political Economy 

History of the United States; W. G. Sumner, History of Pro- 
tectionism in the United States; Frederick List, National System 
of Political Economy; Simon N. Patten, The Economic Basis of 
Protection; R. E. Thompson, Social Science and National Econ- 
omy; F. Bastiat, Sophisms of Protection (translation). 

Course 7. Finance. — H. C. Adams, Public Debts and The 
Science of Finance; C. F. Bastable, Public Finance; G. Conn, The 
Science of Finance (translation) ; Luigi Cossa, Taxation, Its 
Principles and Methods; W. M. Daniels, Elements of Public Fi- 
nance; Carl C. Plehn, Introduction to Public Finance; E. A. Ross, 
Sinking Funds (in the publications of the American Economic 
Association); Victor Rosewater, Special Assessments (in the 
Columbia University Studies in History, Economics, and Public 
Law) ; E. R. A. Seligman, Essays in Taxation and Progressive 
Taxation and The Shifting and Incidence of Taxation; F. Walker, 
Double Taxation in the United States (in the Columbia Univer- 
sity Studies in History, Economics, and Public Law) ; M. West, 
The Inheritance Tax (in the Columbia University Studies, as 
above); F. C. Howe, Taxation in the United States Under the 
Internal Revenue System; W. A. Scott, The Repudiation of State 
Debts; F. W. Taussig, The Tariff History of the United States; 
Thomas K. Urdahl, The Fee System in the United States (in the 
Transactions of the Wisconsin Academy of Sciences, Arts, and 
Letters) ; R. T. Ely, Taxation in American States and Cities; 
David Kinley, The Independent Treasury. 

Course 8. Labor, its Position, its Conditions, and its Earnings. 
— L. Brentano, The Relation of Labor to the Law of To-day; R. 
T. Ely, The Labor Movement in America; N. P. Gilman, Profit 
Sharing; John A. Hobson, The Evolution of Modern Capitalism; 
W. S. Jevons, The State in its Relation to Labor; B. Jones, Co- 
operative Production; J. S. Lowell, Industrial Arbitration and 
Conciliation; H. D. Lloyd, Labor Copartnership; B. Potter, The 
Cooperative Movement in Great Britain; D. Schloss, Methods of 
Industrial Remuneration; F. J. Stimson, Handbook of the Labor 
Law of the United States; C. D. Wright, Industrial Evolution of 
the United States; Sidney and Beatrice (Potter) Webb, Industrial 
Democracy. 

Course 9. Socialism. — Edward Bellamy, Looking Backward; 
Theodor Hertzka, Freeland, A Social Anticipation; John Morley, 



Appendix 355 

Ideal Commonwealths (a description of the socialistic communi- 
ties imagined by Plato, More, and others) ; W. H. Dawson, Ger- 
man Socialism and Ferdinand} Lassalle; R. T. Ely, French and 
German Socialism and Socialism and Social Reform, together 
with supplementary articles in The Ghautauquan for 1899; W. 
Graham, Socialism New and Old; L. Gronlund, The Cooperative 
Commonwealth; T. Kirkup, History of Socialism and Inquiry 
into Socialism; E. de Laveleye, Socialism of To-day; Karl Marx, 
Capital (translation), often called the Bible of socialism; J. Rae, 
Contemporary Socialism; A. Schiiffle, The Quintessence of So- 
cialism; T. D. Woolsey, Communism and Socialism. 

Course 10. Rent, Land Nationalization, and the Single Tax. — 
J. B. Clark, Capital and its Earnings; John R. Commons, The Dis- 
tribution of Wealth; Henry George, Progress and Poverty; John 
A. Hobson, The Economics of Distribution; Simon N. Patten, 
Dynamic Economics ; C. B. Spahr, The Present Distribution of 
Wealth in the United States; F. A. Walker, Land and its Earn- 
ings. 

Course 11. Monopoly and Large Corporations. — Henry C. Ad- 
ams, The Relation of the State to Industrial Action; C. E. Baker, 
Trusts and the People; John B. Clark, Theory of Economic Prog- 
ress (publications of the American Economic Association) ; S. C. 
T. Dodd, Combinations, Their Uses and Abuses; W. W. Cook, The 
Corporation Problem; R. T. Ely, Monopolies and Trusts; T. H. 
Farrer, The State in Its Relation to Trade; G. Gunton, Trusts and 
the Public; Henry Lloyd, Wealth against Commonwealth ; E. Von 
Halle, Trusts and Industrial Combinations ; E. W. Bemis, Indus- 
trial Monopolies. In this field of investigation the reader should 
also consult the various state and federal investigations of the 
problem. The latest is that made by the federal government in 
1899-1900. 

Group III. General Works of Reference. — In addition to the 
books mentioned in the preceding paragraphs, the reader will 
find certain general works of reference of almost inestimable 
value. These may be most conveniently listed under the three 
heads dictionaries, periodicals, and general treatises. 

Dictionaries. — Under this head three works have distinct pre- 
eminence. They are W. D. P. Bliss's Cyclopedia of Social Reform; 
J. J. Lalor's Cyclopedia of Political Science and Political Econ- 



356 An Introduction to Political Economy 

omy; and the Dictionary of Political Economy, edited by R. H. 
Inglis Palgrave. 

Periodicals. — Publications falling under this head are very nu- 
merous. The following should be found in a good working 
library: Publications of the American Economic Association, 
complete; Political Science Quarterly, complete; Quarterly Jour- 
nal of Economics, complete; Annals of the American Academy of 
Political and Social Science, complete; Municipal Affairs, com- 
plete; The Commercial and Financial Chronicle, current; Brad- 
street's, current; Banker's Magazine and Statistical Register, cur- 
rent. Of course, in addition to these there will be wanted other 
trade papers covering the special lines of work on which attention 
is being centered. To-day nearly every trade, industry, and in- 
terest has its own official and unofficial representatives, and these 
may always be consulted with profit. These again should be sup- 
plemented by government publications, wherever possible. 

General Treatises in English. There is a great and growing 
number of treatises which are devoted to the general subject of 
economics. It will be a distinct advantage to have access to as 
many as possible of these. The following list, which is supple- 
mentary to that already given under group I, is by no means ex- 
haustive: E. B. Andrews, Institutes of Economics; F. Bowen, 
American Political Economy; E. Cannan, Elementary Political 
Economy; H. J. Davenport, Outlines of Economic Theory; E. J. 
Devine, Economics; R. T. Ely, Outlines of Economics; C. Gide, 
Principles of Political Economy (translation) ; A. T. Hadley, 
Economics; W. E. Hearn, Plutology; S. M. Macvane, Working 
Principles of Political Economy; A. Marshall, Principles of Eco- 
nomics; J. S. Nicholson, Principles of Political Economy; A. L. 
Perry, Principles of Political Economy; W. Roscher, Political 
Economy (translation); H. Sidgwick, Principles of Political 
Economy; F. A. Walker, Political Economy. 

Group IV. Works of Reference in French and German. — It re- 
mains to suggest for the reader some works in French and Ger- 
man which many will find it an advantage to consult. In Ger- 
man those of special value are Schonberg's Handbuch der Po- 
litischen Oekonomie, the economic works of Wagner, Roscher, 
Cohn, Knies, Wieser, Menger, and Schmoller, and, among maga- 
zines, the Jahrbucher fur NationaWkonomie und Statistik, and 



Appendix 357 

the Jahrbuch fiXr Gesetzgebung, Verwaltung, und Volkswirth- 
schaft. A few French references of probable value are: Gide, 
Principes d'e'conomie politique; Baudrillart, Histoire dHi luxe; 
Leroy-Beaulieu, Traits de la science des finances; Emile de Lave- 
leye's economic writings; and, among magazines, the Revue 
d'economie politique, which represents the younger and more 
progressive element, led by Professor Charles Gide, and the 
Journal des 4conomistes, which is the organ of the ultra-con- 
servative school of French economists. 
24 



358 An Introduction to Political Economy 



2* Questions and Exercises 

The following questions and exercises, with the exception of 
the definitions called for in the first paragraph, are grouped in the 
order of the chapters in which the respective subjects are dis- 
cussed : 



Define or explain the following terms: Sociology; economic 
life; political economy; the state; freedom of contract; utilities; 
marginal utility; economic goods; wealth; wants; luxuries; capi- 
tal; exchange; value; price; demand and supply; cost of pro- 
duction; money; bimetallism; credit; property; interest; capi- 
talization; rent; standard of comfort; margin of cultivation; 
socialism; anarchism. 

Part I, Chapter I 
What are the departments of social life, and what is the relation 
of the economic to the other departments? 
What different views obtain as to the province of sociology? 

Chapter III 
What are the physical characteristics of your own locality? 
How have they influenced its economic life? In what ways do 
you think they will affect its future economic life? In what ways 
has the character of the people in your community been shaped 
by their economic life? 

Chapter IV 
Is there any justification for the term "wage-slavery?" Explain. 

Chapter V 
What are the different economic stages in the life of a people, 
viewed from the standpoint (a) of production; (6) of transfers 
of goods? Describe and give illustrations of each. 
£^ Describe the village community. 



Appendix 359 



Chaptee VI 

Explain the essential difference between the economic system of 
the Middle Ages and that of the present time. 

Describe four of the main features of modern economic life 
which give rise to the present economic problems. 

Explain what is meant by absolute and relative deterioration in 
the economic condition of the masses. 

What are the principal means proposed for uniting labor and 
capital? 

Chapter VII 

In what important respect has the nature of restrictive laws 
been changed? What are the advantages and disadvantages of 
freedom in industry? 

What government activities can you name which were formerly, 
in this or other countries, ancient or modern, delegated to individ- 
uals or private companies, and what have been the reasons which 
led to the adoption of the present system? 

State and criticise the contract theory of government. 

What are the principal reasons why government should own and 
manage forests? 

Chapter VIII 

Show the difference between private and public interests. 
/vrffV Why must we have an ethical ideal in our studies in political 
economy? 

Describe the three classes of definitions of political economy; 
show their logical and historical development, and give examples 
of each. 

Chapter IX 
\]Qf\/ What are the different methods of economic research? Describe 
each. Which are most important? What is the origin and char- 
acter of the historical school? 

Chapter X 
« Are there natural laws in political economy? What is the 
nature of an economic law? of a social law? 

Chapter XI 
\\& What claim has political economy to the name of science? 

To what other sciences is political economy closely related, and 
,i^ in what way? 









^A 



360 An Introduction to Political Economy 

Give illustrations of the influence of the religious life upon the 
economic life of a people. Show some economic causes and results 
in religious reformations; for example, those of Luther, Wyclif 
and the Lollards, of Mohammed, and others. 

What are the principal economic teachings of Moses? of Isaiah? 
of Jesus? Show the growth of economic civilization among the 
Jews as exemplified by their teachings. 



Part II. Chapter I 
What is the relation between production and consumption as 
divisions of political economy? 



Chapter II 

What are the three classes of motives of economic activity, and 
how do they supplement one another? Among what peoples, if 
any, is self-interest the only economic motive? 

What are the effects of luxurious expenditures upon the rich? 
upon the working class? 



Vt 






Chapter III 

What are the different factors in production? Give examples of 
industries where the different factors are represented by different 
persons. 

Which of the four factors in production is most benefited by the 
extension of machinery and division of labor? 

What is meant by land? What services does it render to pro- 
duction? What is the difference between rent and profits? be- 
tween rent and interest? 

What are the checks on population among savages? among civ- 
ilized people? 

How does capital arise? What defense has the capitalist for 
receiving interest? Is credit capital? Is money capital? Dis- 
tinguish between economic goods and capital. 

Are the following things capital, and if so, are they social or in- 
dividual capital? City lots, farms, good eyesight, a dwelling 
house, an actor's diamonds, a theater, bread and butter, railroad 
stock, promissory notes, Fortress Monroe, the White House, Lake 
Erie, a custom house, church taxes, lottery tickets, United States 
greenbacks, the "good will" of a business. 



Appendix 361 

Chapter IV 

Describe the functions of the entrepreneur. Show his relations 
to the principle of division of labor. 

What are the advantages of division of labor? disadvantages? 
Why cannot the division of labor be carried out so well in 
agriculture as in manufactures? 

Show how increased division of labor has made female and 
child labor important problems. 

Part III* Chapter I 
/ (ct What is the relation between utility and value? 

Explain how a monopoly fixes its price. What social con- 
ditions determine the point of maximum monopoly revenue? 
s\fo What is meant by the expression "fair price?" 

Chapter II 

/O^Name and describe the three conceptions of money. 
fji What functions are performed by money? 

What were the ideas of the mercantilists with regard to 
money? 
I riff What are the qualities of gold and silver which make them pre- 
eminently fit for money? 

State all the effects which follow in a country from an in- 
crease or decrease in the quantity of money. 

Is the unqualified statement, "Bad money drives out the good," 
true to the facts? If not, state it better. l \ ~*^ 

\zc' Outline what would seem to you a safe and satisfactory system 
of currency. 

Chapter III 
Name and describe the different instruments of credit. 
What are the advantages of credit? the disadvantages? 



ft 



Chapter IV 

What are the different motives which have led nations to reg- 
ulate international commerce? 

What are the reasons for the apparent credibility of the balance 
of trade theory? Why do bankers look with more distrust upon 



362 An Introduction to Political Economy 

shipments of gold to Europe than upon larger shipments to dis- 
tant parts of our own country? 

Examine and criticise the following: "The ordinary means to 
increase our wealth and treasure [gold and silver] is by foreign 
trade; wherein we must observe this rule: to sell more to stran- 
gers yearly than we consume of theirs in value. For suppose 
that when this kingdom is plentifully served with the cloth, lead, 
tin, iron, fish, and other native commodities, we do yearly export 
the surplus to foreign countries in the value of twenty-two hun- 
dred thousand pounds, by which means we are enabled beyond the 
seas to buy and bring in foreign wares for our use and consump- 
tion to the value of twenty hundred thousand pounds. By this 
order duly kept in our trading we may rest assured that the king- 
dom shall be enriched yearly two hundred thousand pounds, which 
must be brought to us in so much treasure [gold and silver], 
because that part of our stock which is not returned to us in wares 
must necessarily be brought home in treasure." — Thomas Mun, 
1640. 

State the advantages to a country of foreign commerce. 

Part IV. Chapter I 
Define property. What is the meaning of the expression, "jus 
utendi vel abutendi re?" What limitation is there always to the 
right of property? What two elements enter into property? 

Chapter II 

Explain the following: "High or low wages or profit are the 
causes of high or low prices; high or low rent is the effect of it. 
It is because high or low wages or profit must be paid in order 
to bring a particular commodity to market that its price is high 
or low. But it is because its price is high or low, a great deal 
more, or very little more, or no more, than what is sufficient to 
pay these wages and profit, that it affords a high rent or low rent, 
or no rent at all." — Adam Smith. 

"General low wages do not cause low prices, nor high wages 
high prices." Explain. 

What does Ricardo mean by saying that the niggardliness of 
nature is the cause of rent? Is this statement perfectly accurate 7 

Define rent. What is the difference between rent and interest? 



Appendix 363 



i* 



Would the land of a country pay rent if it were all of uniform 
fertility? 

What has been the effect of railroad-building upon rents in the 
United States? r ., /il L 

Does increase in rent cause increase in the price of food? 

"No reduction would take place in the price of corn although 
landlords forego the whole of their rent." Explain. 

"Rent does not enter at all into the cost of production." Ex- 
plain. 

Chapter III 
What elements enter into interest? What determines the rate 
of interest? 
/ yvC ! On what does the rate of interest depend? Why is interest 



higher in Chicago than in New York? 

"That interest does not depend upon the productiveness of 
labor and capital is proved by the general fact that where labor 
and capital are most productive interest is lowest. That it does 
not depend reversely upon wages (or the cost of labor), lowering 
as wages rise and increasing as wages fall, is proved by the 
general fact that interest is high when and where wages are 
high, and low when and where wages are low." Is this true? 't'C. 

Does a fall in the rate of interest mean that the total interest 
paid has decreased either absolutely or relatively to the total 
amount produced? 

"Interest and wages depend on the margin of cultivation, fall- 
ing as it falls and rising as it rises." Explain this. fLtJJi 

Chapter IV 

"The increase of stock [capital], which raises wages, tends 
S to lower profit." — Adam, Smith. Is this correct? 

Explain the difference between capital and capitalization. 

What influence upon the selling price of bonds and land has a 
fall in the rate of interest? a rise in the rate of interest? 

Does the tendency of profits to a minimum depend on a general 
fall in prices? If so, why? If not, why not? 

Ricardo's law of industrial progress is as follows: "In an ad- 
vancing community rent must rise, profits fall, and wages remain 
about the same." Explain this. 



364 An Introduction to Political Economy 



fy 



Chapter V 

"High wages or profits do not make general high prices. They 
affect prices only inasmuch as different articles have, as elements 
of their cost, wages and profits in different proportions." Ex- 
plain. 

Distinguish between rate of wages and price of labor. 

Define the "standard of life." Of what importance is it as an 
economic principle? In what ways does a high or low price of 
food affect the general rate of wages? 

To what kind of work is piecework adapted? What are the 
advantages and disadvantages of piecework? 

Wages of women are not commonly equal to those of men for the 
same work performed. Why is this so? Is it "fair?" 

Why should the economist discuss public education? 



Chapter VI 
What are the differences in organization between trades-unions 
and Knights of Labor, and how have they influenced each other? 



yj 



Chapter VII 
What are the different kinds of cooperation? What are the ad- 
vantages of productive cooperation? 

%Lrl Chapter VIII 

What are the four characteristic features of socialism? How 
does socialism differ from anarchism? 

What is meant by profit-sharing? capital-sharing? cooperation? 
socialism? 

Chapter IX 

What are the characteristics of natural monopolies? 

It is sometimes said that state management of natural monop- 
olies is socialistic. Examine and criticise this statement. 

Examine and criticise the following: "There is no more reason 
why the government should operate the telegraph than run the 
flour mills — less, in fact, for everybody uses flour, while it is doubt- 
ful if even three per cent of the people use the telegraph." 

What conditions justify the state in engaging in industrial en- 
terprises? 



Appendix 365 



w 



What four advantages are claimed to result from public owner- 
ship and management of natural monopolies? 
\fc* In what way may public ownership of certain industries pro- 
mote competition? 

Part V 
| In what ways will the following different kinds of expenditure 
of income affect the wealth of the United States, and the work- 
ing classes: purchase of United States bonds; employment of 
American servants; traveling abroad; purchase of American pic- 
tures; production of manufactured goods? 

Criticise the following statement: "Blessed is the country where 
the rich are extravagant and the poor economical." 

How does the consumption of luxuries retard the industrial 
progress of a community? 

Part VI. Chapter I 
What is public finance? 

Chapter II 
How can methods of taxation be improved? 
What is the justification of taxation? 
Show how society takes part in production in your community. 



366 An Introduction to Political Economy 



3* Bibliography 



The following bibliography contains the works to which reference 
has been made in this volume, together with certain others which it is 
believed may prove helpful to the general reader. The German and 
French works, except the translations, are listed separately. 



Adams, H. C— Taxation in the United States, 1789-1816, Johns Hop- 
kins University Publications, Baltimore, 1884; Relation of the 
State to Industrial Action, American Economic Association, ib., 
1887; Public Debts, New York, 1887; Outline of Lectures on 
Political Economy, second edition, Ann Arbor, 1888 ; The Science 
of Finance, New York, 1898. 

Andrews, E. B. — Institutes of Economics, Boston, 1889. 

Ashley, W. J. — Introduction to Economic History and Theory, New 
York, 1888, 1893 ; Surveys, Historic and Economic, London and 
New York, 1900. 

Ashley, W. J. (Editor). — Economic Classics (New York) : 1. Adam 
Smith, Select Passages; 2. Ricardo, Six Chapters; 3. Malthus, 
Selections from Theory of Population; 4t. Mun, England's Treas- 
ure by Foreign Trade; 5. Jones, Peasant Rents; 6. Schmoller, 
The Mercantile System. 

Atkinson, E. — Reports on Bimetallism in Europe, Washington, 1887. 

Bagehot, Walter. — The English Constitution, New York, 1876 ; Lom- 
bard Street, ib., 1876; Depreciation of Silver, London, 1877; 
Physics and Politics, New York, 1880 ; Economic Studies, London, 
1880 ; Postulates of English Political Economy, New York, 1885. 

Baker, C. W. — Monopolies and The People, third edition, revised and 
enlarged, New York, 1899. 

Bastable, C. F. — The Commerce of Nations, London, 1892; Theory 
of International Trade, Dublin, 1887; Public Finance, second 
edition, London and New York, 1895. 

Bastiat, F. — Sophisms of Protection, New York, 1874. 

Bellamy, Edward. — Looking Backward, Boston, 1888. 

Bemis, E. W. — Municipal Ownership of Gas in the United States, 



Bibliography 367 

Publications of the American Economic Association, Baltimore, 
1891. 

Bemis, E. W. (Editor). — Municipal Monopolies, New York, 1899. 

Blanqui, J. A. — History of Political Economy in Europe (trans- 
lation), New York, 1880. 

Bliss, W. D. P. (Editor). — Encyclopedia of Social Reform, New York, 
1897. 

Bluntschli, J. C. — Theory of the State, translated from the German, 
New York, 1885. 

Bohm-Bawerk, E. von. — Capital and Interest (translation), London 
and New York, 1890; Positive Theory of Capital (translation), 
London and New York,, 1891. 

Bowen, F. — American Political Economy, new edition, New York, 
1885. 

Brentano, L. — The Relation of Labor to the Law of To-day, New 
York, 1891. 

Brown, T. Edwin. — Modern Socialism and Labor Problems, New 
York, 1887. 

Bryce, J. — The American Commonwealth, second edition, London and 
New York, 1891. 

Bulletin of the Department of Labor, published since 1895, Wash- 
ington, D. C. 

Bullock, C. J. — Introduction to the Study of Economics, New York, 
1900; Essays on the Monetary History of the United States, ib., 
1900. 

Cairnes, J. E. — Essays on Political Economy, London, 1873. 

Cannan, Edwin. — Elementary Political Economy, London, 1888 ; His- 
tory of Theories of Production and Distribution, ib., 1893. 

Cannon, J. G. — Clearing Houses : Their History, Methods, and Ad- 
ministration, New York, 1900. 

Carey, H. C — Principles of Social Science, Philadelphia, 1837-1840. 

Clark, J. B. — Philosophy of Wealth, Boston, 1887; Capital and Its 
Earnings, Publications of American Economic Association, Balti- 
more, 1888 ; Possibility of a Scientific Law of Wages, American 
Economic Association, ib., 1889; Distribution of Wealth, New 
York, 1900. 

Clark, J. B., and Giddings, F. H. — The Modern Distributive Process, 
Boston, 1888. 

Cohn, G. — The Science of Finance (translation), Chicago, 1895. 

Coinage Laws of the United States, 1792-1894, Washington, D. C, 
1894. 



368 An Introduction to Political Economy 

Commons, J. R. — The Distribution of Wealth, New York and Lon- 
don, 1893. 
Comte, Auguste. — Positive Philosophy, translated from the French, 

condensed, 2 vols., London, 1875; Positive Polity, translated, ib., 

1877 ; The Catechism of Positive Religion, translated, ib., 1883. 
Conant, C. A. — History of Modern Banks of Issue, New York, 1896. 
Cook, W. W. — The Corporation Problem, New York and London, 1891. 
Cossa, Luigi. — Guide to the Study of Political Economy, translated 

from the Italian, London, 1880 ; Taxation : Its Principles and 

Methods, translated, New York, 1888. 
Cunningham, W. — Outlines of English Industrial History, New York 

and London, 1895; The Growth of English Industry and Com- 
merce, Cambridge, 1890, 1892. 
Daniels, W. M. — Elements of Public Finance, New York, 1899. 
Davenpobt, H. J. — Outlines of Economic Theory, New York, 1896. 
Davidson, J. — The Bargain Theory of Wages, New York, 1898. 
Del Mar, A. — History of Monetary Systems, London, 1895. 
Devine, E. J. — Economics, New York, 1898. 
Dictionary of Political Economy, edited by R. H. I. Palgrave, London, 

1894-1900. 
Dodd, S. C. T. — Combinations: Their Uses and Abuses, New York, 

1888. 
Drummond, Sir Henry. — Tropical Africa, New York, 1889. 
Dunbar, C. F. — The Theory and History of Banking, New York and 

London, 1896. 
Ely, R. T.— Monopolies and Trusts, New York, 1900; Outlines of 

Economics, ib., 1900; Socialism and Social Reform, ib., 1894. 
Fairbanks, Arthur. — Introduction to Sociology, New York, 1896. 
Farrer, T. H. — The State in its Relation to Trade, London, 1883. 
Fawcett, Henry. — Free Trade and Protection, New York, 1878; 

Manual of Political Economy, ib., 1878. 
Fawcett, Millicent G. — Political Economy for Beginners, New 

York, 1878. 
Fisher, I. — Appreciation and Interest, Publications of American 

Economic Association, New York, 1896. 
Gannett, H. — The Building of a Nation, New York, 1895. 
Geddes, Patrick, and Thomas, J. A.— The Evolution of Sex, second 

edition, New York, 1890. 
George, Henry. — Progress and Poverty, New York, 1888; The Land 

Question, ib., 1884 ; Social Problems, ib., 1888. 



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Giddings, F. H. — Sociology and Political Economy, Baltimore, Ameri- 
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New York and London, 1896. 

Gibbins, H. de B. — The Industrial History of England, third edition, 
London, 1894. 

Gide, Charles. — Principles of Political Economy (translation), Bos- 
ton, 1900. 

Gelbart, J. W.— The Logic of Banking, London, 1865 ; The History, 
Principle, and Practice of Banking, 2 vols., London, 1882. 

Gilman, N. P.— Profit-Sharing, Boston and New York, 1889. 

Gladden, Washington. — Working People and their Employers, New 
York, 1885; Applied Christianity, ib., 1887; Parish Problems, 
ib., 1888 ; Social Facts and Forces, New York and London, 1897. 

Goschen, G. J. — Reports and Speeches on Local Taxation, New York, 
1872; Theory and Practice of the Foreign Exchanges, London, 
1886. 

Gronlund, Lawrence. — The Cooperative Commonwealth, Boston, 
1884 ; Ca ira, New York, 1888. 

Gunton, G— Trusts and the Public, New York, 1899. 

Halle, E. von. — Trusts or Industrial Combinations in the United 
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Hearn, W. E— Plutology, London, 1864. 

Helm, E. — The Joint Standard, London, 1894. 

Hertzka, Theodor. — Freeland: A Social Anticipation (translation), 
New York, 1891. 

Hobson, J. A. — The Evolution of Modern Capitalism, London, 1894 ; 
The Economics of Distribution, New York, 1900; John Ruskin, 
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Hodder, Edwin. — The Life and Work of the Seventh Earl of Shaftes- 
bury, New York, 1886. 

Hoffman, F. S.— The Sphere of the State, New York, 1894. 

Holland, T. E. — Elements of Jurisprudence, New York, 1888. 

Horton, S. Dana. — Silver and Gold, Cincinnati, 1877 ; Monetary Situ- 
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Since the Restoration, London, 1888. 

Howe, F. G. — Taxation in the United States under the Internal 
Revenue System, New York, 1896. 

Ingram, J. K. — History of Political Economy, New York, 1888 ; His- 
tory of Slavery, London, 1895. 



370 An Introduction to Political Economy 

James, E. J. — The Relation of the Modern Municipality to the Gas 
Supply, American Economic Association, Baltimore, 1887. 

Jenks, J. W.— The Trust Problem, New York, 1900. 

Jevons, W. Stanley. — Political Economy Science Primer, New York, 
1878 ; Theory of Political Economy, ib., 1879 ; Studies in Deductive 
Logic, ib., 1880; The State in Relation to Labor, ib., 1882; 
Methods of Social Reform, ib., 1883 ; Money and the Mechanism 
of Exchange, ib., 1884 ; Investigations in Currency and Finance, 
ib., 1884 ; Theory of Political Economy, third edition, London, 
1888. 

Jones, E. D. — Economic Crises, New York, 1900. 

Jones, Rev. Richard. — The Distribution of Wealth and the Sources 
of Taxation, London, 1844. 

Kidd, Benjamin. — Social Evolution, New York and London, 1894. 

Kinley, David. — The Independent Treasury of the United States, 
New York, 1893. 

Kirkup, Thomas. — An Inquiry into Socialism, New York, 1888. 

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25 



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INDEX 



INDEX 



Adams, H. B., on history and political 
economy, 118. 

Adams, H. C, definition of political 
economy, 96 ; on public debts, 305 ; con- 
temporary American economist, 344. 

Administration, factor in a national 
economy, 20. 

Adulteration of food products, result- 
ing from unregulated competition, 75. 

Agricultural stage, described. 34. 

Amalgamated Association of Iron and 
Steel Workers, introduced sliding 
scale, 233. 

American Indian, economic condition 
of, 30-1. 

Analysis, an economic method, 108. 

Anarchism, distinguished from social- 
ism, 255. 

Anthropology and political economy, 
120. 

Aquinas, Thomas, on luxury, 143; on 
fair price, 176 ; on justum pretium and 
interest, 332. 

Arbitration, 233; of exchange, 197. 

Aristotle, subordinated economics to 
ethics, 77 ; on luxury, 143 ; economic 
ideas of, 329. 

Asceticism, self-sacrifice degenerated, 
285. 

Ashley, Professor W. B., contemporary 
American economist, 342. 

Atmosphere, influence upon a national 
economy, 18. 

Austrian theory of value, 168, 339^0. 

Avarice, 285. 

B 

Babcock, Professor, invention of milk 
test by, not patented, 259. 

Banks, chief organs for credit-economy, 
38 ; an evidence of the industrial revo- 
lution, 48; national restrictive laws 
upon, not an infringement of liberty, 
64.199. 

Belgium, Latin Monetary Union, 185. 

Bemis, Professor E. W., contemporary 
American economist, 344. 

Bentham, Jeremy, restriction of inher- 
itances, 320. 

Bequests, taxation of, 320. 

Bible, description of pastoral stage, 31-4. 

Bill of exchange, described, 195-6. 

Bimetallism, 185-7. 

Bland-Allison Act, coinage of silver in 
United States, 187. 

Bluntschli, limitations on contracts of 
government, 79; on tendencies of law, 
123. 



Bond issues, to maintain gold reserve, 

189. 
Book credit, 196. 
Brotherly love, a motive of economic 

activity, 140-1. 
Bullock, Charles J., cited, 101. 



Cannan, Edwin, sufferings on account of 
displacements of labor and capital, 50. 

Capital, its new importance a cause of 
economic problems, 51; defined by 
Marx, 53 ; and labor, plans for uniting, 
53; freedom of, with respect to loans, 
69-70; factor of production defined, 
149; fixed and circulatingj 151; saved 
by being consumed, 151; increase of, 
152; distinguished from capitalization, 
224-5 ; formation of, and consumption, 
279-81. 

Capitalization, distinguished from capi- 
tal 224-5. 

Carey, Henry C, argument for protec- 
tion, 203. 

Census estimates of wealth, 134-5. 

Champagne, artificial, an illustration of 
the results of unregulated competition, 
75-6. 

Charity, science of, 272; degenerate, 
285-6. 

Child labor, effect on earnings of the en- 
tire family, 227; laws for lessening 
evils of, 270-1. 

Christianity, offers the highest concep- 
tion of society, 5; progress of, a cause 
of economic problems, 55; economic 
ideas of, 331-2. 

Circulating capital, 151. 

Cities, rise of, in the trades and com- 
merce stage, 36-7. 

Civilization, depending on growth of 
higher wants, 60. 

Clark, Professor J. B., contemporary 
American economist, 343. 

Clearing houses, 199-200. 

Coinage. See Money. 

Colbert, a mercantilist, 334. 

Collectivism, 255. 

Combination in industry, characteristic 
of industrial revolution, 43-7. 

Combinations, always possible in field 
of natural monopolies, 262. 

Commerce, in economic stages, 36; min- 
isters to necessities, not to luxuries, 
as formerly, 49. 

"Common," a survival of common own- 
ership, 36. 

Comtnons, Professor John R„ contem- 
porary American economist, 344. 



382 



Index 



Communism, 256. 

Competition, advantages of , 71 ; disad- 
vantages, 74-5; freedom of, and de- 
mand and supply, 175; in the field of 
natural monopolies, 262-3. 

Compulsory arbitration in New Zealand, 
234. 

Comte, Auguste, on the province of so- 
ciology, 2; on prediction as a requi- 
site of science, 94. 

Constitutional limitations, 306-7. 

Consumers' League, an attempt to raise 
the plane of competition, 76. 

Consumers, not different class from 
producers, 287-8. 

Consumption, 277-93 ; difficulties in treat- 
ment of, 278 ; defined, 278-9 ; and cap- 
ital formation, 279-81 ; alleged present, 
of future products, 281-2; wasteful, 
286-7; control of, 289-90; analysis of, 
291-3. 

Contract, freedom of, with respect to 
labor, 67-8. 

Cooperation, coercive and voluntary, 
244-6. 

Copyrights, 258-9. 

Cornell University, school of forestry, 81. 

Corporations, one aspect of the indus- 
trial revolution, 47-8; freedom in the 
establishment of, 70-1. 

Cost of production, influencing demand 
and supply, 174. 

Craddock, Charles Egbert, description 
of isolated economic life, 15. 

Craft guilds, a method of uniting labor 
and capital, 52; a means of productive 
organization, 153-4. 

Credit, 194-200; advantages of, 196-8; 
evils of, 198-9. 

Credit economy, described, 38-9. 

Crises, 288-9. 

Cromwell, a mercantilist, 334. 

Cunningham, Dr. William, contemporary 
English economist, 341. 

Currency bill of 1900, 190. 

Custom, formerly a powerful factor in 
maintaining industrial peace, 53. 

Customs duties, 317. 

Cyclops, isolated economic life of, 9. 



Debts, public, 305-6. 

Deductive method, described, 103-4. 

Deductive school, representatives of, 
336-7. 

Demand and supply, 172-4. 

Democracy, industrial, 244-6. 

Dependence of man upon man, increases 
with progress of industrial civiliza- 
tion, 13-5. 

Description, part of economic method, 
107-8. 

Deterioration of the masses, absolute 
and relative, 59-60. 

Direct taxes, 317-9. 

Distribution, 211-74; division of products 



depends upon industrial strength, 156; 

law of, depends on rate of increase of 

factors of production, 230. 
Distributive cooperation, 245. 
Distributive justice, aim of socialism, 

249. 

Division of labor, advantages and disad- 
vantages and remedies, 159-60. 

Division of products. See Distribution. 

Draft, described, 195-6. 

Drummond, on the individualism of the 
natives of the heart of Africa, 9. 

Dunbar, Professor C. H., an American 
economist, 342. 

£ 

Economic activity, motives of, 139-43. 

Economic evils, social, 74-5. 

Economic freedom. See Freedom. 

Economic goods, defined, 131. 

Economic laws, 109-113. 

Economic life, isolated and social, 8-10; 
defined, 12; not for self, 13; stages in 
development of ,27 ; the different stages 
not exclusive, 39 ; recent development 
of, 42; and ethics, 76-7; and the state, 
78. See also National Economy. 

Economic methods, 102-8. 

Economic problems. See Problems. 

Economic progress, ideals for, 77-8. 

Economics, evolution of, 325-45. 

Economists, not confined to the material 
life, 6, 12-3. 

Economy. See Economic Life. 

Edgeworth, Professor F. Y., contempo- 
rary English economist, 341. 

Education, value of labor organizations 
in promoting, 242 ; compulsory, coupled 
with laws against child labor, 270; 
cause of increased government ex- 
penditures, 301-2; expenditures for, 
in Russia and in Switzerland, 312. 

Eight-hour day, a problem growing out 
of the industrial revolution, 49. 

Elementary value, 171. 

" Endless chain," 188. 

Engel, the law of family expenditure, 

291-2. 

England, comparison of agricultural 
population of, with that of France, 21 ; 
restrictions on labor in, 65-6; landed 
property in, 68-9 ; corporation laws in, 
70; restrictions on foreign commerce 
abandoned, 73. See also Great Britain. 

Entrepreneur, functions of, 155-6 ; and 
profits of monopolies, 225. See also 
Profits. 

Ethical aims, an essential part of eco- 
nomic activity, 92-3. 

Ethical standards. See Ethics. 

Ethics, higher standards of, a cause of 
economic problems, 55-9; and political 
economy, 58, 118-9; and the economic 
life of nations, 76-7 ; and luxury, 285 ; 
regulated the economic life of the 
Orient, 328. 



Index 



383 



Exchange, usual term for transfer of 
goods, 165 ; arbitration of, 197. 

Excise taxes, 317. 

Expenditures, family, 291-2; govern- 
ment, increase in, 299-302. 

F 

Factory inspection, 234. 

Fair price, in Middle Ages, 118, 176; in 
modern laws, 118-9, 176. 

Falkner, Professor R. P., contemporary 
American economist, 343. 

Family, the first social unit, 9 ; true so- 
cial imit in economic discussions, 272; 
expenditures of, 291-2. 

Farmers' orgamzations, 238. 

Fawcett, Mrs. Millicent, definition of 
political economy, 95. 

Ferguson, Adam, on luxury, 143. 

Fetter, Professor Frank, contemporary 
American economist, 344. 

Fichte, aid offered to political economy 
by, 117. 

Finance, a part of political economy, 100, 
137; defined, 297-8; discussed, 297-322 ; 
source of economic inquiry, 326. 

Fisher, Professor, contemporary Amer- 
ican economist, 342. 

Fishing tribes, described, 31. 

Fixed capital, 151. 

Fluctuations in volume of money, 183-5. 

Forestry, government enterprise, 81-3. 

Form value, 172. 

France, comparison of agricultural pop- 
ulation in, with that of England, 21 ; 
restrictions on labor in, 68 ; Latin Mon- 
etary Union, 185; success of coopera- 
tion in, 243-1. 

Fraser, Dr. James, on obligations of the 
rich to personal service, 252. 

Frederick the Great, a mercantilist, 334. 

Free trade, arguments for, 203-5. 

Freedom.of the uncivilized man,illusory, 
15; relations of modern economic life 
to, 61-76 ; defined, 64 ; of labor, 64 ; of 
person, 64 ; of movement and acquisi- 
tion, 65; of landed property, 68-9; of 
capital with respect to loans, 69-70 ; in 
the establishment of enterprises, 70-1 ; 
of the market, 73-4; of competition, 
and demand and supply, 175. 



George, Henry, land nationalization, 
307-8; private property and taxation, 
311. 

Germany, restrictions on labor in, 68 ; 
restrictions on rate of interest in, 69 ; 
corporation laws in, 70; demonetiza- 
tion of silver in, 185 ; property and pub- 
lic debts in, 306. 

Giddings, Franklin H., on the province 
of sociology, 2; social ideals in eco- 
nomic life, 93; contemporary Ameri- 
can economist, 343. 



Gifts, source of public revenue, 304. 

Godin, profit-sharing establishment in 
Guise, France, 243-4. 

Gold. See Money. 

Government, increase in regulations by, 
63; and democracy, 80; some of the 
functions of, 81-3; and forestry, 81; 
prominent in capital formation, 281; 
should be a model employer, 299 ; ex- 
penditures, general increase in, 299- 
302 ; a partner in production, 311. See 
also State. 

Great Britain, expenditures of, 300. 

Greeks, reasons for having no com- 
plete political economy, 326-7; eco- 
nomic ideas of, 329-30. 

Guilds, craft, a method of uniting labor 
and capital, 52 ; mediaeval, described, 

153-4. 



Hadley, Professor Arthur T., contem- 
porary American economist, 342. 

Henry, Professor, refused to take out 
patent on telegraph, 259. 

Hewitt, Hon. A. S., recognized the va- 
lidity of the law that wages depend on 
standard of life, 228. 

Hildebrand, historical method, 104, 
337. 

Historical school, rise of and descrip- 
tion Of, 104-5, 337-9. 

History, necessity of its study in political 
economy, 25; and political economy, 
117-8 ; of political economy, the need 
of studying, 325-6. 

Hobson, John A., contemporary Eng- 
lish economist, 342. 

Hull, C. H., contemporary American 
economist, 343. 

Hunting and fishing stage, described, 
29-30. 

Hygiene and political economy, 117. 



Ideals, for economic progress, 77-8; im- 
portance of, in study of political econ- 
omy, 92. 

Idleness, involuntary, 271. 

Immigration, to the United States, re- 
stricted^; restriction of, a limitation 
on freedom of movement, 67-8. 

Improvement, temporary suffering 
caused by, leads to resistance, 49-50; 
possibility of, for the masses, a cause 
of economic problems, 55. 

Income tax, 319. 

Indian. See American Indian. 

Indirect taxes, 317-8. 

Individual, economic activity of the, 
19-20; enterprise of, necessary, 80; and 
society, distinction in political econo- 
my, 132-3. 

Individual and social capital distin- 
guished, 150. 

Individual and social cost, 175. 



384 



Index 



Inductive method described, 102. 

Industrial democracy, 244. 

Industrial revolution, cause of economic 

problems, 42. 
Industrial stage, described, 37. 
Inflation, 181-2. 
Ingram, Dr. John K., contemporary 

English economist, 341. 
Inheritances, taxation of, 319-20. 
Instruments of credit, 195-6. 
Insurance, control over consumption, 

290. 
Intemperance, 272. 
Interest, restrictions on rate of, 69-70; 

defined and discussed, 218-20 ; ideas of 

Aristotle on, 330. 
Internal revenue taxes, 317. 
International law and political economy, 

124-5. 
Italy, Latin Monetary Union, 185. 



Jenks, Professor J. W., contemporary 
American economist, 343. 

Jevons, Professor Stanley, theory of 
value, 339. 

K 

Knies, historical method, 104, 337; defi- 
nition of credit, 194. 

Knights of Labor, 236-8. 



Labor, three general historical condi- 
tions of, 23-4 ; and the capitalistic mode 
of production, 51-2 ; and capital, plans 
for uniting, 53 ; factor of production, 
146; and protection, 204-5 ; classes of, 
231 ; growth of, 238 ; a natural growth, 
238; opposition to, 239 ; organizations, 
nearly all, temperance societies, 241; 

' organizations, educational value of, 
242. 

Labor problems, source of economic in- 
quiry, 326-7. See also Child Labor and 
Woman Labor. 

Laissez-faire, origin and meaning, 98; 
claimed to be an economic law, 110; 
the basis of the work of the physi- 
ocrats and Adam Smith, 336. 

Land, nationalization and municipaliza- 
tion, 307-8. 

Land property, freedom of transfers, 
68-9. 

Lane, Jonathan A., value of personal 
property and real estate in Boston 
compared, 318. 

Latin Monetary Union, 185. 

Langhlin, J. Laurence, History of Bi- 
metallism cited, 100; contemporary 
American economist, 344. 

Laveleye, definition of political econ- 
omy, 99; on luxury, 143; on the best 
order for human affairs, 274. 

Law, evolution of, 25; and political 
economy, 121-5. 



Laws, restrictive, mav increase real 
freedom, 62-3 ; no longer special, but 
general, 63-4. 

Legislation, a factor in a national econ- 
omy, 20-22. 

Lotze, Hermann, aid offered to political 
economy by, 117. 

Louis XIV, on royal extravagance, 282. 

Lowell, J. R., definition of political econ- 
omy, 85. 

Lubbock, Sir John, on the individualism 
of savages, 9; the true savage neither 
free nor noble, 27. 

Luxury, defined, 141-2; public and pri- 
vate, 142-3 ; not a benefit to the poor, 
282-3. 

M 

Maine, Sir Henry S., on the change in 
legal conceptions, 25; civilized man 
not conscious of legal rules, 27; on 
property in village communities, 35; 
u sharp practice and hard bargaining," 
the market law, 55-7 ; on obedience to 
law in civilized nations, 61-2; on eco- 
nomic incapacity of lawyers, 122; on 
economic classes in India, 328. 

Malthus, attitude toward wealth and 
welfare, 97 ; a writer on a special topic, 
100 ; on population, 146-8 ; The Theory 
of Population, 337. 

Malthusianism, 146-8. 

Man. his activity a chief factor in a 
national economy, 19. 

Margin of cultivation, defined, 214. 

Market, freedom of, 73-4; theory of the, 
288. 

Marshall, Professor, place in political 
economy held by, 341. 

Marx, definition of capital, 53-4. 

Massachusetts, Eeport of Bureau of Sta- 
tistics of Labor on family expenditure, 
292. 

Mayo-Smith, Professor Richmond, con- 
temporary American economist, 343. 

Menger, Professor Karl, a founder of 
the Austrian school, 339. 

Mercantilists, economic ideas of, 334-6. 

Methods. See Economic Methods. 

Meyer, Professor B. H., contemporary 
American economist, 344. 

Middle Ages, reasons for having no 
complete political economy, 327; eco- 
nomic ideas of, 332-3. 

Mill, John Stuart, on the proper limit to 
governmental activity, 78; on limita- 
tions on government contracts, 79; 
definition of political economy, 96; 
parts of political economy, 101; on 
economic incapacity of lawyers, 122; 
on man's work m creating utilities, 129; 
definition of credit, 194 ; public utility 
the basis of private property, 310; 
follower of Ricardo, 337. 

Milling, an example of the industrial rev- 
olution, 43-6. 

Money, the amount needed, 182-3. 



Index 



385 



Money economy, described, 38. 

Monometallism, 185. 

Monopolies, natural, restriction on es- 
tablishment Of, 71-2; profits of, 225-6; 
defined, 257; classified, 258; social, 
258-61 ; natural, characteristics of, 262; 
natural, advantages in public owner- 
ship of, 264-8; social, will be over- 
thrown by public ownership of natural 
monopolies 268. 

Montesquieu, "the spirit of the laws," 
121 ; on expenditures of the rich, 282. 

Mosaic Code, prohibits alienation of 
land, 69 ; prohibits usury, 69. 

Motives of economic activity, 139-43. 

Mulford, definition of the State, 16. 

Mun, Thomas, a mercantilist, 334. 

Municipalization of land, 307-8. 

N 

National economy, defined, 12 ; political 
independence the basis of, 15-6 ; the 
two great factors in a, 17; an histor- 
ical product, 23. 

National Farmers' Alliance, 238. 

Nationalization of land, 307-8. 

Natural law and political economy, 98. 

Natural laws, what are they ? 110. 

Natural monopolies. See Monopolies. 

Nature, factor of production, 144-5. 

New York, increase of local taxes in, 
301. 



Observation, part of economic method, 

107-8. 
Ohio, increase of state and local taxes 

in, 301. 
Orient, the, economic ideas of, 328-9. 
Over-production, and under-consump- 

tion, 136-7; really under-production, 



Panics, 288-9. 

Paper money, 180-1. 

Parsimony, public, evil results of, 
314-5. 

Past and present, misleading compari- 
sons between, 134. 

Pastoral stage described, 33-4. 

Patents, 259-61. 

Patriotism, a motive of economic activ- 
ity, 140. 

Patrons of Husbandry, 238. 

Patten, Professor Simon N., contempo- 
rary American economist, 343. 

Pauperism, 272. 

Peel, Sir Robert, introduced police force, 
302. 

Philosophy and political economy, 116-7. 

Physiocrats, treated economics as a sci- 
ence of things, 98 ; first scientific econ- 
omists, 326; economic ideas of, 336. 

Physiology and political economy, 117. 

Piecework, 232-3. 



Place value, 172. 

Plato, subordinated economics to ethics, 
77 ; on luxury, 143 ; economic ideas of, 
329. 

Pliny, economic ideas of, 330-1. 

Political economy, place among the so- 
cial sciences, 1 ; the life sphere with 
which it has to do, 6; the best intro- 
duction to sociology, 7 ; not restricted 
to material considerations, 12-3; 
necessity of historical study, 25-6; 
has shown possibility of improve- 
ment for the masses, 55; nature and 
scope of, 85-101 ; derivation of the term, 
85; defined, 86-7; simpler than private 
economies, 88; regards permanent 
interests, 91; both a dynamic and a 
static science, 91; importance of 
social ideals in, 92; is it a science? 94: 
main parts of, 99-101; a useful 
science, 114-6; and philosophy, 116-7; 
and physiology and hygiene, 117; 
and history, 117-8; and ethics, 118-9; 
and religion, 119-20; and anthropol- 
ogy, 120-1 ; and law, 121-5 ; history of, 
325-6 ; in Germany, 337-9 ; in England, 
340-2; in United States, 342-5. 

Political freedom. See Freedom. 

Political independence, the basis of a 
national economy, 15-6. 

Politics, the purification of, secured by 

Jmblic ownership of natural monopo- 
ies, 267. 

Popular suffrage. See Suffrage, 273. 

Population, growth of, 146-8. 

Price, 171. 

Private and public economy, distinc- 
tion between, 87. 

Private and public responsibilities, 83. 

Private business, confusion of public 
and, 51. 

Private welfare, not identical with pub- 
lic, 89-90. 

Problem of the working day, effect of 
the industrial revolution, 49. 

Problems, economic, not local, 42 ; social 
and their remedies, 270-4. 

Prodigality, 282-6. 

Producers, not different class from con- 
sumers, 287-8. 

Production, elements often overlooked 
in statistical estimates of, 133-4; fac- 
tors of, 144-52 ; organization of factors, 
153-61; and distribution not sharp- 
ly separated, 211; disproportionate, 
cause of crises, 288; government a 
partner in, 311-2. 

Productive cooperation, 245. 

Productive domains, source of govern- 
ment revenue, 304-5. 

Productivity, increase of, in modern 
times, 161. 

Profits, defined, 221; of monopolies, 
225-6. 

Profit-sharing, in United States, 243; in 
France, 244. 

Promissory notes described, 195-6. 



386 



Index 



Property, historical changes in the con- 
ditions of, 24 ; freedom of landed, 68-9 ; 
defined, 212; private, limitations on, 
310. 

Protectionism, 201-7 ; diversified-nat- 
ural-industry argument, 202; infant- 
industry argument, 202; statistics of, 
of little value, 206; an historical 
growth, 206. 

Prussia, free trade in land, 68. 

Public and private economy, distinction 
between, 87. 

Public and private responsibilities, 
83. 

Public business, confusion of private 
aud, 51. 

Public debts, 305-6. 

Public finance. See Finance. 

Public luxury, when justifiable, 284-5. 

Public parsimony, evil results of, 314-6. 

Public prosperity, increased by public 
ownership of natural monopolies, 264. 

Public resources, better utilization of, 
321-2. 

Public spirit, a motive of economic ac- 
tivity, 140-1. 

Public welfare, not identical with pri- 
vate, 89-90. 



Reform, social, 253. 

Reformation, Protestant, effect on eco- 
nomic inquiry, 327. 

Reinsch, Professor P. F., cited, 192. 

Religion, progress of, a cause of eco- 
nomic problems, 55; and political 
economy, 119-20 ; a motive of economic 
activity, 140. 

Remedies for evils of economic free- 
dom, 75-6 ; for evils of minute division 
of labor, 160-1 ; for social evils, 270-4. 

Rent, defined, 214; discussed, 214-7; 
influence of fashion on, 216; land na- 
tionalization, 307-8. 

Restrictions, on labor, 68 ; on the estab- 
lishment of natural monopolies, 71-2. 

Restrictive laws, may increase real free- 
dom, 62-3. 

Revenues, of government compared 
with expenditures, 302-3; permanent 
sources of, 303-4. 

Ricardo, David, economic doctrines of, 
337. 

Riches, sudden, cause of economic 
problems, 50. 

Rogers, Professor J. E. T., on labor or- 
ganizations in England, 239-40. 

Roman law, on property, 212; important 
in economic studies, 331. 

Roman luxury, 283. 

Romans, reasons for having no com- 
plete political economy, 326-7; eco- 
nomic ideas of, 330-1. 

Roscher, William, historical method, 
104, 337: definition of credit, 194; 
on development of economic ideas, 
332-3. 



Say, Jean-Baptiste, the theory of the 
market, 288. 

School of forestry, 81. 

Schwab, Professor, a contemporary 
American economist, 342. 

Scott, Professor W. A., a contemporary 
American economist, 344. 

Self-interest, not a constant measurable 
force, 111 ; a motive of economic activ- 
ity, 139-40. 

Seligman, Professor E. R. A., a con- 
temporary American economist, 343. 

Serfdom, an historical condition of 
labor, 23-4. 

Serra, an Italian mercantilist, 334. 

Sherman Act of 1890, 188. 

Sidgwick, Professor, on the distinctive 
teachings of Christianity, 332. 

Silver. See Money. 

Silver question and bimetallism, 185-7. 

Sismondi, definition of political econ- 
omy, 97. 

Slavery, an historical condition of 
labor, 23-4. 

Sliding scale introduced in iron indus- 
try, 233. 

Small, Albion W., on the province of 
labor .sociology, 2. 

Smart, William, on the Austrian theory 
of value, 168 ; a contemporary English 
economist, 341. 

Smith, Adam, uses "manufacturers" 
for skilled artisans, 53 ; laws of settle- 
ment oppressive to the poor, 65-6; 
cited, 67 ; on causes of differences oi 
wages, 232; Wealth of Nations, 336. 

Social and individual capital distin- 
guished, 150. 

Social and individual cost, 175. 

Social esteem, love of, a central motive 
in production, 141. 

Social evils, also economic. 74-5. 

Social problems. See Problems. 

Social reform, 253. 

Socialism, 248-56; strength of, 251-3; 
weakness of, 253-4. 

Socialists, do not attack capital in it- 
self, 51-2 ; character of, 254-5. 

Societv, is organic, 5-6; departments 
of life in, 6 ; distinction between, and 
individual, in political economy, 132-3. 

Sociology, defined, 1-4; present condi- 
tion of the science, 6 ; political econ- 
omy the best introduction to, 6. 

Soil, influence upon a national econ- 
omy, 18. 

Spencer, Herbert, on the province of 
sociology, 2. 

Standard of comfort, defined and dis- 
cussed 227-30. 

Standard* of life', defined and discussed, 

227-30. 
State, defined, 16; and economic life, 78. 

See also Government. 
State action, utility the criterion of, 78-9. 



Index 



387 



State ownership of natural monopolies, 
advantages of, 264-8. 

Statistical method, 103. 

Statistics, in arguments for and against 
protection, 206. 

Steuart, Sir James, a mercantilist, 334 ; 
definition of political economy, 335. 

Strikes, success and failure of, 240-1. 

Sub-treasury system, 298-9. 

Suffrage, restriction of, not a remedy 
for social evils, 273-4. 

Sumner, Professor W. G., a contempo- 
rary American economist, 342. 

Supply and demand, 172-6. 

Switzerland, proposes international fac- 
tory legislation, 125; Latin Monetary 
Union, 185. 



Tariff, 201-7. 

Taussig, Professor F. W., cited, 101; 
contemporary American economist, 
342. 

Tax, direct, 317-8. 

Taxation, 310-22; not an evil, 312; in- 
creases with freedom, 312-3 ; increases 
production, 313-4; better adjustment 
of burdens of, desirable, 316-9; better 
utilization of public resources, desir- 
able, 321-2. 

Taxes, indirect, 317; excise, 317. 

Temperance, in labor organizations, 241. 

Territory, a chief factor in a national 
economy, 17-9. 

Thucydides, action and reaction the ex- 
planation of historical occurrences, 20. 

Tocqueville, de, American intelligence 
and division of labor, 160. 

Trades and commerce stage, described, 
36-7. 

Trades unions. 236-8. 

" Tramp laws," 66-7. 

Transfers of goods, 165-207; economic 
stages of, 38-40. 

Truck economy described, 38. 

Trusts, a step m the evolution of indus- 
try, 47-8; when suitable for public 
management, 272. 



Under-consumption and over-produc- 
tion, 136-7, 288. 



Under-production, cause of crises, 288. 

United States, restrictions on labor in, 
68 ; usury laws in, 70 ; corporation laws 
in, 70-1 ; freedom of domestic trade in, 
72-3; increase in federal expenditures 
in, 299-301. 

Usury laws, 70. 

Utility, defined and discussed, 129-32; re- 
lation to production, 129; relation to 
value explained, 165-71 ; concrete, de- 
fined, 279 ; pure abstract, defined, 279. 

Utility, criterion of state action, 78-9. 



"Value, defined, 170-1 ; elementary, form, 
place, time, 171-2. 

Voltaire, on lawyers, 123. 

Von Bohm-Bawerk, Professor, a found- 
er of the Austrian school, 339. 

Von Wieser, Professor Friedrich, a 
founder of the Austrian school, 339. 

w 

Wages, of superintendence, 222; and 
the wage system, 227-35; causes of 
differences of, 231-2. 

Walker, work on rent cited, 100 ; on a 
graded increase of money, 184. 

Wants, and the growth of civilization, 
60 ; censurable and commendable, 141. 

Ward, Lester F., on the province of so- 
ciology, 2; on social self-guidance, 
91. 

Wasteful consumption, 286-7. 

Water privileges, influence upon a na- 
tional economy, 18. 

Wealth, defined, 132. 

Webb, Sidney and Beatrice (Potter), 
contemporary English economists, 342. 

Willcox, Professor W. F., contemporary 
American economist, 343. 

Women, labor of, often overlooked, 133 ; 
labor of, effect on wages in general, 
227. 



Xenophon, economic writings of, 330. 



Young, Arthur, on property, 277. 






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